##### 



Exhibit 13
 2007
Financial Review Annual Report




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fertile future
 PotashCorp: Supplying Fertilizer to the World
 Through our growth from the largest Canadian potash company
yesterdayto the global leader of todaywith the promise of
even more tomorrow, some things have never changed. For
almost two decades we have helped farmers produce quality
crops. Our help is needed even more today, because millions
of people in booming offshore countries can now afford
better, healthier diets and the modern consumer goods made
with our products. Our high-quality resources  nitrogen,
phosphate and particularly potash  are in demand as world
requirements for food, fuel, feed and fiber increase. And
PotashCorp delivers, operating with care for the environment,
our employees and the communities we serve, because we will
be here tomorrow, too, fulfilling our long-term promise.




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TABLE OF CONTENTS
 IntroductionLetter from the CFO
    
    
    2Peer Comparisons
    
    
    3Managements Discussion & AnalysisOur Global Story
    
    
    4Company Overview
    
    
    6PotashOverview
    
    
    10Strategy
    
    
    13Delivering
    
    
    14Risks
    
    
    16NitrogenOverview
    
    
    17Strategy
    
    
    20Delivering
    
    
    20Risks
    
    
    20PhosphateOverview
    
    
    21Strategy
    
    
    24Delivering
    
    
    24Risks
    
    
    24Key Performance Drivers
    
    
    25Rewarding Results
    
    
    28Risk Management
    
    
    29Factors That Shaped our Business in 2007
    
    
    312007 Financial Overview
    
    
    34Business Segment Review
    
    
    352008 Outlook
    
    
    50Liquidity and Capital Resources/Management
    
    
    53Accounting Estimates and Changes
    
    
    6011 Year Report
    
    
    65FinancialsFinancial Performance Indicators
    
    
    66Independent Registered CharteredAccountants Reports
    
    
    70Consolidated Financial Statements
    
    
    72Appendix
    
    
    113
 learn even more online
 yesterday today tomorrow







(POTASHCORPP2007AR.COM)






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2
        
LETTER FROM THE CFO
  
 WAYNE R. BROWNLEE
 EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
      
  OUR POTASH POTENTIAL IS TREMENDOUS. WITH HIGHER
 DEMAND AND PRICES, AND AVERAGING A MILLION
 TONNES OF NEW OPERATIONAL CAPACITY EACH YEAR FOR
 FIVE YEARS, POTASH GROSS MARGIN COULD RISE
 SIGNIFICANTLY.




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P E E R    C O M P A R I S O N S

    3
  PEERS IN OUR INDUSTRY
  NET INCOME ($US MILLIONS)
 
 CASH
FLOW FROM OPERATIONS ($US MILLIONS)
 
 CAPITAL
EXPENDITURES1 ($US MILLIONS)
 Comparability of Peer Information
   Sources:
 1
    
    Capital expenditures = additions to property, plant and equipment2
    
    Year ended December 31, 20073
    
    Most recent four fiscal quarters ended November 30, 20074
    
    Most recent four fiscal quarters ended September 30, 20075
    
    Yara net income, cash flow from operations and capital
expenditures translated at 1 USD = NOK 5.8775, average exchange rate for 2007 as provided from company reports6
    
    K+S net income, cash flow from operations and capital expenditures translated by
quarter at: Q4 2006 1 USD = EUR 0.7760; Q1 2007 1 USD = EUR 0.7634; Q2 2007 1 USD = EUR
0.7419; and Q3 2007 1 USD = EUR 0.7280; average exchange rates in each quarter per Bloomberg




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MANAGEMENTS
DISCUSSION & ANALYSISof Financial Condition and
Results of Operations (in US Dollars)The following discussion and analysis is the responsibility of management and is as
of February 20, 2008. The Board of Directors carries out its responsibility for review
of this disclosure principally through its audit committee, comprised exclusively of
independent directors. The audit committee reviews this disclosure and recommends
its approval by the Board of Directors. Additional information relating to PotashCorp
(which is not incorporated by reference herein) can be found on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov.OUR GLOBAL STORY
 
   THE WORLD NEEDS MORE FERTILIZER
  yesterday today
 tomorrow
 FERTILIZER IS AN ESSENTIAL PART
 OF TOMORROWS SOLUTION




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Learn more in our online report:     ()

    5
 Population and incomes are growing
    
    
    Demand for more and better
 food is rising
    
    
    Grain inventories are at a 
 record lowIn recent years, world population has
risen annually by 75 million, mainly
in developing nations with emerging
economies. Continued economic growth
in China, India and other Asian and
Latin American countries easily
outpaced a slowing US economy in 2007
and drove world GDP up by nearly 5
percent. Millions of people in these
countries, especially China and India,
now have higher incomes and more
purchasing power.
    
    
    Although 80 percent of the worlds
population still earns less than $3,000
per year, better-quality food rich in
protein is becoming more common and
affordable in developing countries.
Studies show that as incomes in this
category rise, the increase is allotted first to improved
diet, particularly to meat. This has
pushed up the demand for grain as animal
feed. At the same time, Asias demand
for fruits and vegetables is displacing
cereals from cropland.
    
    
    Although record amounts of grain and
oilseeds were grown in the 2007/08
crop year, global consumption
exceeded production, just as it did
in seven of the last eight years 
long before biofuels became much of
an additional draw on global crop
production. USDA forecasts that
grain inventories will fall to just 14
percent of consumption by the end
of the current crop year, the lowest
level ever recorded and not enough
to feed the world for two months.
Stocks of rice and soybeans are also falling.(GRAPH)
    
    
    (GRAPH)
    
    
    (GRAPH)Sustained high crop prices support 
fertilizer demand
    
    
    Farmers investment in fertilizer pays off
    
    
    More fertilizer required to nurture
soils for more cropsIn response to strong demand, prices of
almost every globally significant
crop rose substantially in 2007, often
to record levels. This encouraged
farmers to maximize yields by
optimizing fertilizer applications.
Futures prices for corn, soybeans and
wheat in 2009 are more
than double 2006 levels.
    
    
    Everywhere that crops are grown, the
economics of buying and using fertilizer
are compelling. The excellent value it
provides for the worlds farmers was
confirmed by a recent International
Plant Nutrition Institute (IPNI) survey,
which took into consideration higher
crop prices and much higher fertilizer
costs. Most crops in the survey returned
more than $3 for every $1 invested in N,
P and K fertilization. Oil palm from a
mature Malaysian plantation returned $9
per $1 invested in fertilization.
    
    
    Crops are nourished by nitrogen, phosphate
and potash. Applied to the soil in the right
quantities at the right time, these
nutrients work synergistically to
improve yields, quality and disease
resistance. Historical
under-application of fertilizer 
especially potash  by farmers in
countries like China, India and
Brazil has led to chronic low yields
there. These farmers are now
investing in
fertilizer. Potash fertilizer
consumption grew annually by an
average of 5.6 percent in the last
five years, phosphate by 3.8
percent and nitrogen by 2.7 percent,
and more growth is expected.(GRAPH)
    
    
    (GRAPH)
    
    
    (GRAPH)




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6


C O M P A N Y   O V E R V I E W
  1
 2
 
 PotashCorp Is the Worlds Largest Fertilizer Enterprise
 P O T A S H C O R P    A N  O V E R V I E W
 A GLOBAL SUCCESS STORY
 Yesterday Today tomorrow
  
    
    Fertilizer, focused on balanced plant nutrition (N, P, K)
    
    Feed supplements, focused on animal nutrition (mainly P)
    
    Industrial, focused on products for high-grade food, technical and other applications (N, P as
phosphoric acid, K).
  FERTILIZER IS OUR BUSINESS




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C O M P A N Y   O V E R V I E W

Learn
more in our online report:()
    
    7
  BUILDING EXCELLENCE ON POTASH FIRST
 Potash Is the Heart of Our Business
   Nitrogen and Phosphate Add Depth and Breadth
 Feed and Industrial Are Stable Businesses
   2007 AT A GLANCE: THE POTASH ADVANTAGEOur Potash First strategy is based on factors that give the nutrient a superior position in the fertilizer universe.Potash
    
    K
    
    Nitrogen
    
    N
    

Phosphate                     PBase Product
    
    Potassium chloride (KCl)
    
    Ammonia (NH3)
    
    Phosphoric acid (P2O5)Availability of Raw Materials 1
    

Very
limited
    
    Abundant (natural gas)
    
    LimitedCost of New Capacity 2
    
    $2.5 billion* / 2 MMT KCl
    
    $1.0 billion / 1 MMT NH3**
    
    $1.5 billion / 1 MMT P2O5Greenfield 3 Development Time
4
    
    5-7 years
    
     3 years
    
    3-4 yearsProducing Countries 5
    
    12
    
    
    
    ~ 60
    
    
    
    ~ 40 (based on phosphoric acid)State- or Subsidy-Controlled Capacity
6
    
    19%
    
    
    
    57%
    
    
    
    47%Industry Operating Rate 7
    
    91%
    
    
    
    86%
    
    
    
    86%PotashCorp Nameplate Capacity 8
    
    13.2 MMT potassium chloride
    
    3.9 MMT ammonia
    
    2.4 MMT phosphoric acidPotashCorp % of World Capacity
    
    22
    
    
    
    2
    
    
    
    6PotashCorp World Position by Capacity
9
    
    #1
    
    
    
    #2
    
    
    
    #35-Year Demand Growth CAGR 10
    
    5.6%
    
    
    
    3.4%
    
    
    
    3.7%




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8

    C O M P A N Y  O V E R V I E W
  RECORD()1.1
    
    BILLION2007 NET INCOME88%INCREASE IN GROSS MARGIN31%
    

INCREASE INPOTASHPRODUCTION & SALES


Availability of Supply and Quality Matter
  OUR VALUE PROPOSITION
 Potash for Growth, Trinidad Nitrogen and Phosphate Diversity for Earnings
Stability
   DELIVERING TODAY WHILE MAPPING OUR FUTURE





POTASHCORP
2007 FINANCIAL REVIEW






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C O M P A N Y  O V E R V I E W


9
  
 CAPABILITY TO DELIVER
  
    
    An experienced management team that takes a broad view of our business, develops long-term
strategies and commits the company to them
    
    A solid capital structure that enables us to take advantage of opportunities and withstand normal
short-term business fluctuations
    
    Substantial cash flow, which is both the result and the cause of our success
    
    A productive workforce, motivated sales teams and coordinated transportation network.
  Our Cash Flow Is Solidifying the 
Company of Tomorrow




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10

    P O T A S H
  #1
    

PRODUCER OFPOTASH8
    

MILLIONTONNESINCREASE IN PRODUCTION(From 2007 actual to 2015 potential)() 4.5
    
    BILLIONIN PROJECTS ANNOUNCED IN 2007


POTASHCORP  THE GLOBAL POTASH LEADER
 OVERVIEW
 The World of Potash and Our Place in It
  Potash: The Best Long-Term Fertilizer Enterprise
  Good Deposits Are Rare
  Ownership Is Primarily Private
  Significant Barriers to Entry
  WEVE BEEN IN THIS BUSINESS FOR DECADES, COMPLETING

MANY PROJECTS THAT ADDED SUBSTANTIAL CAPACITY. WEHAVE THE EXPERIENCE AND THE RESOURCES TO SUCCESSFULLYEXECUTE ALL OF OUR NEW EXPANSION PROJECTS.GARTH MOORE, PRESIDENT PCS POTASH




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P O T A S H

Learn
more in our online
report:()
    

11
  
 STRENGTHS    Capability to substantially raise capacity in less time than and at a significant discount to
comparable greenfield capacity    Low-cost, flexible production, with a small percentage of fixed costs    Declining per-tonne production costs and mining taxes with expanded volumes    Long reserve lives from existing mine shafts    Offshore potash-related investments add considerably to overall profitability    Substantial barriers to entry, with high capital costs and long lead times    Few world producers, little government ownership    No substitutable products for potash
 WEAKNESSES    High rail and ocean freight delivery costs for Saskatchewan potash, potential for bottlenecks    Water inflows at New Brunswick and Esterhazy increase production costs there and risk loss of
production    Production costs exposed to Canadian dollar volatility    High Saskatchewan resource taxes and federal and provincial income taxes, relative to global competitors
 OPPORTUNITIES    Global food story, complemented by biofuels, is accelerating long-term growth expectations for
potash consumption    With competitors at or near maximum operating rates and limited expansion potential, planned
capacity additions should enable PotashCorp to increase our percentage participation in a growing
market
 THREATS    Potash demand growth could exceed companys logistical capability to deliver in the short term    Demand can be temporarily affected by changes in consumption patterns in offshore markets    Substantial upward pricing trend may attract greenfield projects    PotashCorp would be disproportionately affected by market weakness, particularly in the short term




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12

    P O T A S H
  PotashCorp: A Long-Term Potash Enterprise
  Potash Sales and Logistics: Offshore
 Potash Sales and Logistics: North America
    
 
 We
have announced $4.5 billion of debottlenecks and expansions
to raise our operational capacity to 15.7 million tonnes by the end
of 2012, and potentially to 17.2 million tonnes three years later.
 
 
 
    
    China buys from Canpotex under three-year memoranda of understanding, with pricing negotiated
annually. The current memorandum expires at the end of 2009.
    
    India has traditionally bought from Canpotex as needed under six- to 12-month price and volume
contracts.
    
    Brazil buys from Canpotex and PCS Sales on the spot market, as do Southeast Asian countries from
Canpotex.
 Global and North American Competitors
   Strategic Investments Enhance Our Enterprise




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P O T A S H

    13
  OUR STRATEGY
 RAISE CAPACITY TO MEET RISING DEMAND
 yesterday today tomorrow
 Timing Capacity Additions to Market Need
  Producing to Meet Market Demand
  Greenfield Unlikely Threat to Our Strategy




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14

    P O T A S H
  DELIVERING ON OUR POTASH PROMISE
 Preparing for Tomorrows Needs
   Investing
in Transportation and Distribution Infrastructure
 
   
 Our Debottlenecking and Expansion Projects Should Enable Us to Meet Expected World Demand
 Location
    
    
    Investment
    
    
    Standard
    
    
    Compaction
    
    
    Expected ConstructionBillion $ CDN
    
    
    Capacity Added
    
    
    Capacity Added
    
    
    CompletionRocanville
    
    
    $
    0.13
    
    
    
    0.75 MMT
    
    
    1.50 MMT
    
    
    Complete (2005)Allan
    
    
    $
    0.21
    
    
    
    0.40 MMT
    
    
    0.50 MMT
    
    
    Complete (2007)Lanigan
    
    
    $
    0.41
    
    
    
    1.50 MMT
    
    
    0.75 MMT
    
    
    Q2 2008Patience Lake
    
    
    $
    0.11
    
    
    
    0.36 MMT
    
    
    
    
    
    Q4 2008Cory
    
    
    $
    0.89
    
    
    
    1.20 MMT
    
    
    0.75 MMT
    
    
    Q2 2010New Brunswick
    
    
    $
    1.66
    
    
    
    1.20 MMT
    
    
    0.75 MMT
    
    
    Q4 2011Rocanville
    
    
    $
    1.80
    
    
    
    2.00 MMT
    
    

To
be determined
    
    
    Q4 2012Total
    
    
    $
    5.21
    
    
    
    7.41 MMT




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P O T A S H

    15
 (BAR GRAPH)
    
    

Record US Crops Drive Potash Demand, Prices
The record 2007 US corn crop removed significant levels of nutrients from the soil, which should be
replaced to ensure a good crop in 2008. Corn is a heavy user of potash, and the resulting demand
tightened market conditions to the point that PotashCorp was required to sell product on an
allocation basis to all customers. Over the year, we announced US
price increases that totaled $194
per short ton for 2007 and first-quarter 2008.
 (BAR GRAPH)
    
    

Rising Prices Reflect Growing World Demand
The worlds farmers recognize the value of potash to improve their crops, and prices have significantly increased in response to market demand. Spot market prices to Brazil and Southeast Asia
nearly doubled in 2007, sharply widening the gaps with contract prices paid by China and India. We
expect current supply/demand fundamentals to narrow these differences
considerably.
 (BAR GRAPH)
    
    

World KCl Sales and Consumption Growth
World demand for potash can be temporarily affected, as occurred in 2006 when sales were
essentially suspended during lengthy price negotiations with China and India. Fertilizer
consumption, however, continued to grow, significantly depleting world inventories. Global
consumption has risen steadily, averaging 5.6 percent annually
over the last five years.




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16


P
O T A S H
  RISKS TO OUR
POTASH STRATEGY
  Suppressed Demand Creating Market Imbalance
  Lack of Adequate Transportation and Distribution Infrastructure
 Risks Particular to Underground Mines
    New Supply Creating Market Imbalance




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N I T R O G E N
    Learn more in our online report:     ()
    17
  POTASHCORP  OUR TRINIDAD ADVANTAGE
 OVERVIEW
 The World of Nitrogen and Our Place in It
  Nitrogen Is a Regional Business
  Widespread Ammonia Production, Limited Trade
   Governments Invest in Nitrogen
  The Strong Nitrogen Market Continues
  OUR EXCEPTIONAL
LONG-TERM, LOWER-COST 
NATURAL GAS CONTRACTS
MAKE TRINIDAD THE FOCUS  

OF OUR NITROGEN ENTERPRISE. IN 2007,
BOTH TRINIDAD 

AND OUR US PLANTS PERFORMED WELL GENERATING


RECORD NITROGEN GROSS MARGIN.THOMAS REGAN, JR.,PRESIDENT PCS PHOSPHATE AND PCS NITROGEN
 # 2

    IN WORLDAMMONIACAPACITY65%

    OF AMMONIAPRODUCEDIN TRINIDAD95%AVERAGE
TRINIDAD
NATURAL GAS VOLUMESLOCKED IN 2008 THROUGH 2012(73% 2008 THROUGH 2018)




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18


N I T R O G E N
  
 STRENGTHS

    Long-term, lower-cost natural gas contracts in Trinidad
    Almost two-thirds of our ammonia
production in Trinidad, close to the
worlds largest importer, the US
    US-manufactured ammonia operations
somewhat geographically insulated,
and make more than 80 percent of
sales to stable industrial
customers
    Hedging program mitigates natural
gas price risk related to US
productionWEAKNESSES
    One-third of our ammonia production in
the US, using higher-cost natural gas
    Contractual commitments to US
industrial customers may force us to
operate unprofitably amid rising gas
prices
    Many nitrogen plants globally,
with significant government
ownership and influenceOPPORTUNITIES
    Narrowing gap in global gas prices is
raising floor price for nitrogen
    Europe now the swing supplier with
higher gas costs, supporting a higher
floor for US nitrogen prices
LNG projects in low-cost gas regions
provide alternatives for monetizing
gas, reducing new supply pressures in
nitrogen
    Higher construction costs discourage greenfield plants
    Higher ocean freight costs discourage
nitrogen imports into the US from
Eastern Europe and the Middle EastTHREATS
    Abundant low-cost natural gas in
developing countries may lead to its
monetization as nitrogen products
    Shorter construction period means
new capacity can impact the market
more quickly than for other primary
nutrients
    Pending changes in transport
regulations in North America could
substantially increase costs of
shipping ammonia and difficulty in
siting terminals




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N I T R O G E N

    19
  The N Game
 PotashCorp: Building on Trinidad and Industrial
   
 
 Driven
by strong world demand and higher Russian and
European gas prices, nitrogen prices in the US have
decoupled
from gas costs, considerably improving profitability.
 
 
  Higher Costs Delay Greenfield Projects
 Nitrogen Sales and Logistics




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20


N I T R O G E N
  OUR
STRATEGY
 BUILDING ON OUR TRINIDAD ASSET TO
MINIMIZE VOLATILITY
 
   Natural Gas Reliability and Price Are Linked
  2007
 DELIVERING ON EFFICIENT PRODUCTION
 MAXIMIZING PRODUCTION AND
STRENGTHENING OUR TRINIDAD ADVANTAGE
   NITROGEN RISK
 Risk of Cyclicality




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P H O S P H A T E

Learn
more in our online report:()
    
    21




POTASHCORP  FLEXIBILITY OF PRODUCTION
 OVERVIEW
 The World of Phosphate and Our Place in It
 
 Strong Phosphate Companies Start with Good Rock
 Global
Phosphate Rock Deposits
 
 Dramatic Turnaround in 2007
 
 Price Push from Sulfur
 
 
  UNPRECEDENTED MARKET CONDITIONS IN 2007
DRAMATICALLY
 INCREASED THE VALUE OF POTASHCORPS PHOSPHATE
ASSETS,
 ALLOWING US TO GENERATE RECORD GROSS MARGINS ACROSS
 OUR
DIVERSE PRODUCT LINES.
 DAVID DELANEY,PRESIDENT
PCS SALES


# 3
    
    IN
GLOBALCAPACITY
 # 1
    
    WORLD
PRODUCER OFSPECIALTY PHOSPHATE
PRODUCTS
 LARGESTLOWEST
COST
US ROCK DEPOSITS
    

#
1




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22
    
    P H O S P H A T E
  Limited New Solid Fertilizer Capacity
  PotashCorp: Specializing in Diversity
 We Begin with Quality Phosphate Rock
 Industry Demands Purified Phosphoric Acid
  Feed Supplements for Animals and Poultry
  Phosphate Sales and Logistics
   
 
 Extremely tight supply/demand fundamentals in fertilizer resulted in arational, market-oriented pricing response across all products. This dramaticallyimproved the fortunes of PotashCorps phosphate fertilizer business.
 
 
  
 Global and North American Competitors




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P H O S P H A T E


23




POTASHCORP
2007 FINANCIAL REVIEW


STRENGTHS

    Significant high-quality,
low-cost phosphate rock reserves
    Ability to direct rock with low
levels of impurities to diversified
product line to optimize margins
    Mining near processing
facilities provides cost
advantage over North American
competitors
    Access to lower-cost North American liquid sulfur
    Strong position in North American
purified acid and feed phosphate
marketsWEAKNESSES
    Transporting ammonia to solid
fertilizer plants is becoming more
difficult and costly
    Higher sulfur and ammonia costs
can negatively impact margins
    Plants with high fixed costs
may not perform profitably at
lower operating rates
    Long-term sales contracts for
industrial and some liquid
fertilizer products can cause a lag
in pricing in times of rising input
costs, temporarily impacting
marginsOPPORTUNITIES
    Tight phosphate rock, phosphoric
acid and solid fertilizer
supply/demand fundamentals
    Few companies globally with rock of
sufficient quality to economically
produce purified acid
    We believe that fewer greenfield
projects gives at least a three-year
window on solid fertilizer supply until
Saudi Arabias Maaden project comes on
streamTHREATS
    Significant government control in
global phosphate supply and
consumption decisions
    High barriers to exit because of
significant environmental
restoration and remediation costs
    Extensive environmental and permitting requirements




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24


P H O S P H A T E
  OUR STRATEGY
 USE OUR PRODUCT FLEXIBILITY TO MAXIMIZE
RETURNS, ENHANCE STABILITY
    DELIVERING ON PRODUCT DIVERSITY
 PHOSPHATE RISKS
 Risk of Cyclicality
  United States Environmental Protection Agency




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K E Y  P E R F O R M A N C E  D R I V E R S
    25
  
 l   ¡
  PEOPLE
    
    Encourage and Reward Performance To have motivated and productive employees committed to our long-term goals.Prevent Harm to People
 2007 TARGETS
    
    
    2007 RESULTSFill at least 75 percent of senior staff openings with internal
candidates.
    
    l
    85 percent of senior staff openings were filled with
internal candidates.Improve employee engagement, as measured by surveys, by
10 percent from 2006.
    
    (BULLET)
    Employee engagement improved by 3 percent.Reduce recordable injury rate by 15 percent from 2006.
    
    ¡
    Recordable injury rate increased by
9 percent.Reduce lost-time injury rate by 40 percent from 2006.
    
    l
    Lost-time injury rate was reduced
by 48 percent.
 2008 TARGETS1
    
    Achieve an average employee engagement score that is in the top quartile as determined by the
annual employee engagement survey.2
    
    Fill at least 75 percent of senior staff openings with internal candidates.3
    
    Continue safety initiatives to reduce severity and lost-time injury rates to zero. Reduce
recordable injury rates by 15 percent from 2007 level. Reduce lost-time injury rates by 20
percent from 2007 level.




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26

    K E Y  P E R F O R M A N C E  D R I V E R S
 
 COMMUNITY
    
    Have Positive Impact on Communities in which We Operate§   To strengthen relationships with and improve the socio-economic well-being of our communitiesPrevent Damage to Environment§   To have no accidents and no damage to the environment2007
TARGETS
    2007
RESULTSReduce reportable releases and
permit excursions by 10 percent from
2006.
    (LOGO)
    Total reportable releases and permit
excursions remained unchanged.Achieve a 10 percent increase in
individual participation in the
matching gift program and a 20
percent increase in total donations.
    (LOGO)
    Achieved a 15 percent increase in
individual participation in the
matching gift program and a 15
percent increase in total donations.2008 TARGETS1  Reduce company-wide greenhouse gas emissions per tonne of product by 10 percent by the end of
2012, compared to 2007.2  Maintain energy usage per tonne of product produced at 2007 levels.3  Reduce reportable releases and permit excursions by 15 percent from 2007 levels.4  Achieve 4 out of 5 on each community leaders survey.5  Achieve a 10 percent increase in individual participation in the matching gift program
and a 20 percent increase in total donations from 2007 levels. Meet our annual
philanthropic donations target of 1 percent of after-tax earnings on a five-year rolling
average.6  Achieve a local purchasing level of 60 percent, excluding purchases of energy, transportation
and raw materials.
 CUSTOMER
    

Provide
High-Quality Service, Provide High-Quality Products§   
To meet customer needs and expectations.2007 TARGET
    
    2007 RESULTOutperform competitors on quality
and service as measured by customer
surveys.
    
    (LOGO)
    Based on results of 2007 customer
surveys, we outperformed all our
competitors in customer service in
all four product groups,
outperformed all competitors for
product quality for two product
groups, finished second of eight
competitors in fertilizer quality
ratings and third in purified
phosphoric acid quality ratings.2008 TARGETOutperform competitors on quality and service as measured by customer surveys.




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K E Y  P E R F O R M A N C E  D R I V E R S

    27
 
 SHAREHOLDER
    
    Increase High-Margin Stable Sales, Reduce Cash Costs§  To
meet the needs and expectations of our providers of
capital2007 TARGETS
    
    
    
    2007 RESULTSExceed total shareholder return performance for our sector* and companies on
the DJUSBM1 for 2007.
    
    (LOGO)
    We achieved total shareholder return in 2007 of 202 percent, exceeding the
141 percent generated by our sector and the 30 percent return of the DJUSBM.Carry a higher multiple than the average of our sector on both earnings and
cash flow.
    
    (LOGO)
    Throughout 2007, our multiples were higher than the average of other
fertilizer companies on both earnings and cash flow.Achieve gross margin compound annual growth rate (CAGR) of 15 percent over next five
years.
    
    (LOGO)
    Achieved 88 percent growth in gross margin over 2006 and a five-year gross
margin compound annual growth rate of 44 percent.Potash gross margin to exceed $800 million, more than 40 percent above 2006.
    
    (LOGO)
    Potash gross margin was $912 million, 63 percent higher than 2006 levels.Phosphate gross margin to be up by 50 percent from 2006.
    
    (LOGO)
    Phosphate gross margin rose 245 percent from 2006 levels.Nitrogen gross margin to exceed $325 million.
    
    (LOGO)
    Nitrogen gross margin was $536 million.Achieve 3 percent reduction in per-tonne potash conversion costs on a
Canadian dollar basis.
    
    (LOGO)
    Excluding the impact of natural gas and brine inflow costs, per-tonne potash
costs were 10 percent below 2006 levels.Improve energy efficiency in Trinidad by 3 percent from 2006.
    
    (LOGO)
    Trinidad energy efficiency improved by 2 percent from 2006 levels.Achieve rock costs at Aurora and White Springs 1 percent below 2006.
    
    (LOGO)
    Rock costs at these sites rose 4 percent from 2006 levels.Maintain cash conversion costs for P2O5 at 2006 levels.
    
    (LOGO)
    Cash conversion costs for P2O5 rose by 3 percent from 2006 levels.Reduce/avoid transportation and distribution expenses to achieve a level 3
percent below market rates.
    
    (LOGO)
    Our transportation and distribution costs were 8 percent below market rates.Remain in the top quartile of governance practices as measured
by external reviews.
    
    (LOGO)
    Target achieved, including placing
eighth among more than 270
S&P/TSX companies evaluated by Report on Business.2008 TARGETS1  Exceed total shareholder return for our sector and companies on the DJUSBM for 2008.2  Remain in the top quartile of governance practices as measured by external reviews.
 1

    Dow Jones US Basic Materials Index*

    Sector = Mosaic, Agrium, Yara, ICL, SQM and K+S




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##### 



28


R E W A R D I N G  R E S U L T S
   PHILOSOPHY, REWARD STRUCTURE AND OVERSIGHT
 
   Compensation
    

    
    

    
    

    PerformanceElement
    

    Form
    

    Eligibility
    

    Period
    

    DeterminationBase salary
    

    Cash
    

    All salaried
employees
    

    Annual
    


         
For executive officers, targets are set to the median of
comparable companies, adjusted to reflect individual and
corporate performance.Short-term incentives
    

    Cash
    

    All executives and
most salaried staff
and union and
non-union employees
    

    1 year
    


     
 Based on achieving predetermined goals for corporate
performance or a combination of corporate and operating group
performance.
     
Can be adjusted (± 20%) to recognize individual performance.
     
 Beginning January 1, 2008, this annual cash bonus plan was
extended to all Canadian and US hourly employees (union and
non-union), providing a strong incentive for them to focus on
achieving operational and corporate goals.Medium-term
    

    Performance share
units
    

    All executives and
senior
management(67
people)
    

    3 years
    


     
Units issued at our average share price on award date.

     
Units vest and are paid out at the end of the three-year
performance period, calculated whereby half the units vest in
accordance with specific total shareholder return (TSR)1 targets and half vest in accordance with our TSR
relative to a selected peer groups TSR.

     
Payout value is based on the number of vested units
multiplied by our 30-day average share price at the end of
the performance period (subject to a maximum of three times
the initial unit price).Long-term 
incentives
    

    Performance options
    

    All executives,
senior management
and other select
management (241
people)
    

    3 years (vesting)
10 years (option
term)
    




     
Performance options incorporate a performance-based vesting
schedule measuring the three-year average excess of cash flow
return over our weighted average cost of capital.

     
Vested share value is based on our share price appreciation
within the option term.See Performance Options on next page.
 1
    
    TSR is the total shareholder return on an investment in PotashCorp stock from
the time the investment is made.
TSR has two components: (1) growth in share price and (2) related dividend income on
the shares.
  
 JANE IRWIN,
   (PHOTO)




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##### 



R E W A R D I N G  R E S U L T S

    29
 PERFORMANCE OPTIONS ALIGN EXECUTIVE COMPENSATION, SHAREHOLDER INTERESTS
 Performance Measure
    
    Vesting Scale3-Year Average Excess of Cash Flow
Return on Investment over Weighted
Average Cost of Capital
    
    Percentage of
Stock Option
Grant Vesting<0%
    
    0%0.20%
    
    30%1.20%
    
    70%2.20%
    
    90%2.50%
    
    100%
   R I S K     M A N A G E M E N T
  MANAGING RISKS TO OUR ENTERPRISE
  Risk to Reputation
 PotashCorps Global Risk Environment




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##### 



30
    

R I S K  M A N A G E M E N T
 RISK MANAGEMENT METHODOLOGY
  The Risk Ranking Matrix
    A
    
    Extreme:Initiate risk management activities immediately to reduce
risk. If such activities cannot sufficiently reduce risk level,
consider discontinuation of the applicable business operation in order
to avoid the risk.B
    
    Major:Initiate risk management activities at next available
opportunity to reduce risk. If such activities cannot sufficiently
reduce risk level, board approval is required to confirm acceptance of
this major risk level.
 C
    
    Acceptable:Level of risk is acceptable within tolerances of the
current Risk Management Policy. No additional risk management
activities required.D
    
    Low:Monitor risk according to Risk Management Policy requirements,
but no additional risk management activities required.E
    
    Negligible:Consider discontinuing any related risk management
activities in order to direct resources to higher-value activities,
providing such discontinuance does not adversely affect any other risk
areas.
   Our Risk Management Process Is Continuous
   POTASHCORP RISK MANAGEMENT RANKING METHODOLOGYSEVERITY
OF CONSEQUENCERisk Ranking Matrix
    
    
    1
    
    
    2
    
    
    3
    
    
    4
    
    
    5Negligible < $10M
    
    
    Low < $40M
    
    
    Medium < $150M
    
    
    Major < $500M
    
    
    Extreme > $500M(LOGO)
    
    
    
    1
    
    
    
    Probable (annual)
    
    
    C
    
    
    B
    
    
    B
    
    
    A
    
    
    A2
    
    
    
    High (2-3 years)
    
    
    D
    
    
    C
    
    
    B
    
    
    B
    
    
    A3
    
    
    
    Medium (4-10 years)
    
    
    D
    
    
    D
    
    
    C
    
    
    B
    
    
    B4
    
    
    
    Low (11-30 years)
    
    
    E
    
    
    D
    
    
    D
    
    
    C
    
    
    B5
    
    
    
    Remote (31-100 years)
    
    
    E
    
    
    E
    
    
    D
    
    
    D
    
    
    C




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##### 



F A C T O R S  T H A T  S H A P E D  O U R  B U S I N E S  I N  2 0 0 7

    31
  1 World Economy Continued to Climb
  2 Global Grain Consumption Exceeded Production
  3 Thirst for Oil Pushed Up Prices
  4 Biofuels Production Jumped




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##### 



32


F
A C T O R S  T H A T  S H A P E D  O
U R  B U S I N E S S  I N  2 0 0 7
  World N, P and K DemandPotash
    
    
    Nitrogen
    
    
    Phosphate2007
    
    2006
    
    
    2007
    
    2006
    
    
    2007
    
    2006Total World 
Demand11
(Million Product Tonnes)
    
    
    55.2
    
    
    
    48.0
    
    
    
    
    155.8
    
    
    
    149.1
    
    
    
    
    65.6
    
    
    
    63.0PotashCorp 
Share of World 

Production12
    
    
    17
    %
    
    
    15
    %
    
    
    
    2
    %
    
    
    2
    %
    
    
    
    6
    %
    
    
    6
    %11-12, See Appendix  Footnotes, Page 113
 5 Major Crop Inventories Continued to Shrink
  6 Demand for N, P and K Accelerated
  7 US Farm Prices Set New Records
  8 Potash in Demand Worldwide




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##### 



F A C T O R S   T H A T   S H A P E D   O U R   B U S I N E S S   I N   2 0 0 7

    33
  9
    
    The Global Phosphate Market Tightened
 2 5
 10
    
    Strong Demand for Feed and Industrial Phosphates
  11
    
    Higher Natural Gas Prices, Competition Stiffened
 12
    
    Strong US, Indian Imports Tightened Urea Supply/Demand
  13
    
    High Capital Costs Limited Growth in Fertilizer Capacity




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##### 



34
    F I N A N C I A L  R E V I E W
 2007 FINANCIAL OVERVIEW
 This section provides an overview of our financial performance based on our consolidated financial
statements on Pages 72 to 111. All references to per-share amounts pertain to diluted net income
per share (EPS). Certain of the prior years figures have been reclassified to conform with the
current years presentation.
  Dollars (millions, except per-share amounts)
    
    % Increase (Decrease)2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006Sales
    
    $
    5,234.2
    
    
    $
    3,766.7
    
    
    $
    3,847.2
    
    
    
    39
    
    
    
    (2
    )Gross Margin
    
    $
    1,881.2
    
    
    $
    1,002.0
    
    
    $
    1,125.0
    
    
    
    88
    
    
    
    (11
    )Operating Income
    
    $
    1,588.5
    
    
    $
    875.5
    
    
    $
    892.6
    
    
    
    81
    
    
    
    (2
    )Net Income
    
    $
    1,103.6
    
    
    $
    631.8
    
    
    $
    542.9
    
    
    
    75
    
    
    
    16Net Income
per Share  Diluted
    
    $
    3.40
    
    
    $
    1.98
    
    
    $
    1.63
    
    
    
    72
    
    
    
    21
 2007 Earnings Compared to Guidance
    
    
    
    
    
    
    
    
    
    
    2007 Earnings Compared to 2006The companys initial midpoint estimate for 2007 EPS, based on the
Outlook and assumptions described in our 2006 Financial Review Annual Report, was
approximately $2.25 per share. The final result was $3.40 per
share. The primary causes of this variance from our guidance
midpoint were:
    
    
    
    
    
    
    The companys EPS for 2006 was $1.98 per share. The final EPS for 2007 was $3.40 per share. The
primary causes of this increase from last years actuals were:EffectCause
    
    on EPSPotash offshore realized prices higher
    
    $
    0.31Effect
    
    
    
    
    
    
    
    Potash North American realized prices higher
    
    
    0.15Cause
    
    on EPS
    
    
    
    
    
    
    
    Potash offshore sales volumes higher
    
    
    0.26Potash realized prices higher
    
    $
    0.23
    
    
    
    
    
    
    
    Potash North American sales volumes higher
    
    
    0.19Potash sales volumes higher
    
    
    0.13
    
    
    
    
    
    
    
    Increased potash costs due to foreign exchange
    
    
    (0.07
    )Increased potash costs due to foreign exchange
    
    
    (0.06
    )
    
    
    
    
    
    
    Lower potash other operating costs
    
    
    0.04Increased brine inflow costs
    
    
    (0.11
    )
    
    
    
    
    
    
    Increased brine inflow costs
    
    
    (0.11
    )Increased potash other operating costs
    
    
    (0.04
    )
    
    
    
    
    
    
    Higher provincial mining taxes
    
    
    (0.14
    )Lower provincial mining taxes
    
    
    0.02
    
    
    
    
    
    
    
    Subtotal potash
    
    
    0.63Subtotal potash
    
    
    0.17
    
    
    
    
    
    
    
    Nitrogen realized prices higher (exclusiveNitrogen realized prices higher (exclusive
    
    
    
    
    
    
    
    
    
    
    of purchased and miscellaneous product)
    
    
    0.43of purchased and miscellaneous product)
    
    
    0.49
    
    
    
    
    
    
    
    Manufactured nitrogen sales volumes higher
    
    
    0.19Manufactured nitrogen sales volumes higher
    
    
    0.17
    
    
    
    
    
    
    
    Increased net cost of natural gas and higherIncreased net cost of natural gas
    
    
    (0.06
    )
    
    
    
    
    
    
    purchased and miscellaneous product margin
    
    
    (0.03
    )Increased nitrogen other operating costs
    
    
    
    
    
    
    
    
    
    
    Increased nitrogen other operating costs (exclusive(exclusive of cost of natural gas) and higher
    
    
    
    
    
    
    
    
    
    
    of cost of natural gas and purchased ammonia)
    
    
    (0.11
    )purchased and miscellaneous product
margin
    
    
    (0.12
    )
    
    
    
    
    
    
    Subtotal nitrogen
    
    
    0.48Subtotal nitrogen
    
    
    0.48
    
    
    
    
    
    
    
    Phosphate realized prices higher
    
    
    0.70Phosphate realized prices higher
    
    
    0.70
    
    
    
    
    
    
    
    Phosphate sales volumes higher
    
    
    0.07Phosphate sales volumes higher
    
    
    0.08
    
    
    
    
    
    
    
    Increased input costs for sulfur, rock and ammonia
    
    
    (0.04
    )Increased input costs for sulfur, rock and ammonia
    
    
    (0.10
    )
    
    
    
    
    
    
    Phosphate other operating costs higher
    
    
    (0.05
    )Phosphate other operating costs higher
    
    
    (0.11
    )
    
    
    
    
    
    
    Subtotal phosphate
    
    
    0.68Subtotal phosphate
    
    
    0.57
    
    
    
    
    
    
    
    Increase in other income (exclusive of provisionIncrease in other income (exclusive of provision
    
    
    
    
    
    
    
    
    
    
    for auction rate securities)
    
    
    0.12for auction rate securities)
    
    
    0.13
    
    
    
    
    
    
    
    Provision for auction rate securities in 2007
    
    
    (0.06
    )Provision for auction rate securities in 2007
    
    
    (0.06
    )
    
    
    
    
    
    
    Increase in selling and administrative
    
    
    (0.13
    )Increase in selling and administrative
    
    
    (0.11
    )
    
    
    
    
    
    
    Foreign exchange variance andForeign exchange variance
    
    
    (0.14
    )
    
    
    
    
    
    
    decrease in interest expense
    
    
    (0.13
    )Subtotal other
    
    
    (0.18
    )
    
    
    
    
    
    
    Subtotal other
    
    
    (0.20
    )Subtotal of the above
    
    
    1.04
    
    
    
    
    
    
    
    Subtotal of the above
    
    
    1.59Higher weighted averaged number of shares outstanding
    
    
    (0.01
    )
    
    
    
    
    
    
    Higher weighted average number of shares outstanding
    
    
    (0.05
    )Canadian federal income tax rate reductions during 2007
    
    
    0.12
    
    
    
    
    
    
    
    Income tax refunds and higher rate reductions during 2006
    
    
    (0.12
    )Total variance from 2007 diluted EPS guidance
    
    $
    1.15
    
    
    
    
    
    
    
    Total variance from 2006 diluted EPS
    
    $
    1.42




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##### 



B U S I N E S S  S E G M E N T  R E V I E W

    35
 BUSINESS SEGMENT REVIEW
    POTASH RESULTS
  % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    (Decrease)
    
    Tonnes (thousands)
    
    (Decrease)
    
    Average Price per Tonne
    
    (Decrease)2007
    
    
    2006
    
    
    2005
    
    

    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    2005
    
    2007
    
    
    2006
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006Sales
    
    $
    1,797.2
    
    
    $
    1,227.5
    
    
    $
    1,341.1
    
    
    
    46
    
    
    
    (8
    )Freight
    
    
    178.1
    
    
    
    130.5
    
    
    
    129.7
    
    
    
    36
    
    
    
    1Transportationand distribution
    
    
    39.1
    
    
    
    38.8
    
    
    
    34.5
    
    
    
    1
    
    
    
    12Net sales
    
    $
    1,580.0
    
    
    $
    1,058.2
    
    
    $
    1,176.9
    
    
    
    49
    
    
    
    (10
    )Manufactured productNet salesNorth American
    
    $
    656.9
    
    
    $
    470.5
    
    
    $
    495.6
    
    
    
    40
    
    
    
    (5
    )
    
    
    3,471
    
    
    
    2,785
    
    
    
    3,144
    
    
    
    25
    
    
    
    (11
    )
    
    $
    189.26
    
    
    $
    168.95
    
    
    $
    157.64
    
    
    
    12
    
    
    
    7Offshore
    
    
    909.6
    
    
    
    576.0
    
    
    
    668.3
    
    
    
    58
    
    
    
    (14
    )
    
    
    5,929
    
    
    
    4,411
    
    
    
    5,020
    
    
    
    34
    
    
    
    (12
    )
    
    $
    153.41
    
    
    $
    130.56
    
    
    $
    133.13
    
    
    
    18
    
    
    
    (2
    )1,566.5
    
    
    
    1,046.5
    
    
    
    1,163.9
    
    
    
    50
    
    
    
    (10
    )
    
    
    9,400
    
    
    
    7,196
    
    
    
    8,164
    
    
    
    31
    
    
    
    (12
    )
    
    $
    166.65
    
    
    $
    145.42
    
    
    $
    142.57
    
    
    
    15
    
    
    
    2Cost of goods sold
    
    
    658.8
    
    
    
    489.3
    
    
    
    459.6
    
    
    
    35
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    70.09
    
    
    $
    67.99
    
    
    $
    56.30
    
    
    
    3
    
    
    
    21Gross margin
    
    
    907.7
    
    
    
    557.2
    
    
    
    704.3
    
    
    
    63
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    96.56
    
    
    $
    77.43
    
    
    $
    86.27
    
    
    
    25
    
    
    
    (10
    )Other miscellaneousand purchased productNet sales
    
    
    13.5
    
    
    
    11.7
    
    
    
    13.0
    
    
    
    15
    
    
    
    (10
    )Cost of goods sold
    
    
    8.9
    
    
    
    7.8
    
    
    
    9.9
    
    
    
    14
    
    
    
    (21
    )Gross margin
    
    
    4.6
    
    
    
    3.9
    
    
    
    3.1
    
    
    
    18
    
    
    
    26Gross Margin
    
    $
    912.3
    
    
    $
    561.1
    
    
    $
    707.4
    
    
    
    63
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    97.05
    
    
    $
    77.97
    
    
    $
    86.65
    
    
    
    24
    
    
    
    (10
    )Note 19 to the consolidated financial statements provides information pertaining to our business segments.
  Manufactured potash gross margin variance attributable to:Dollars (millions) 2007 vs 2006Change in
    
    
    
    Change in Prices/Costs
    
    
    
    Total Manufactured PotashSales Volumes
    
    
    
    Net Sales
    
    
    Cost of Goods Sold
    
    
    
    Gross Margin VarianceManufactured productNorth American
    
    $
    84.0
    
    
    
    $
    70.5
    
    
    $
    (17.1
    )
    
    
    $
    137.4Offshore
    
    
    124.8
    
    
    
    
    135.5
    
    
    
    (47.3
    )
    
    
    
    213.0Change in market mix
    
    
    6.8
    
    
    
    
    (6.5
    )
    
    
    (0.2
    )
    
    
    
    0.1Total
    
    $
    215.6
    
    
    
    $
    199.5
    
    
    $
    (64.6
    )
    
    
    $
    350.5




---



##### 



36

    B U S I N E S S  S E G M E N T  R E V I E W
 2007 vs 2006
 Highlights
 
    
    2007 potash gross margin was a record
$912.3 million, 63 percent higher than 2006
when offshore volumes were impacted by
lengthy price negotiations with China and
India, and 29 percent above the previous
high of $707.4 million in 2005.
    
    Exceptionally tight potash market
conditions led to products being sold on
an allocation basis to all customers for
much of the last half of 2007. Sales
prices and volumes were higher than in
2006 in both the North American and
offshore markets. Sales volumes of 9.4
million tonnes established a new company
record and were 31 percent higher than in
2006.
    
    Farmers outside of North America are
working to correct decades of
under-application of potash and, while this
will take many years to accomplish, potash
is vital to improving crop quality and
gives plants the capability to better
utilize nitrogen and phosphate. As a
result, demand rose in 2007, taking
reported producer inventories to
historically low levels and contributing to
further offshore spot market price
increases during the year. Even with
production 31 percent higher than in 2006,
our year-end potash inventories of
approximately 680,000 tonnes were 27
percent below 2006 year-end levels and
represented our second-lowest year-end
inventory since 1991.
    
    To meet increasing global demand, we
raised our production to 9.2 million
tonnes in 2007; this compares to 7.0
million tonnes in 2006. Despite higher
production levels, cost of goods sold per
tonne increased due to additional costs
for brine inflow management at Esterhazy
and New Brunswick and the impact of a
stronger Canadian dollar.
 Sales and Cost of Goods Sold
  
    
    Canpotex shipped 9.3 million tonnes
(PotashCorps share was 55 percent) in 2007
as all major markets increased consumption,
driven significantly by rising demand and
higher commodity prices, particularly for
grain, soybeans, corn and palm oil. When
considering our share of sales through
Canpotex and sales directly from our
facility in New Brunswick, Brazil was our
largest market in 2007, taking 24 percent
of our total offshore shipments as higher
soybean and corn prices led to an increase
in acres planted there and a corresponding
increase in potash imports. China was next
at 23 percent and India followed at
   9 percent, while Indonesia, Malaysia and
Vietnam together represented 16 percent. In
North America, sales volumes
were up 25 percent as stronger dealer fill and
field application of potash, due to higher
commodity prices and more acreage planted, led
to higher demand.
    
    Offshore prices were up 18 percent as
price increases in major markets were
announced throughout 2007. In early
February, Canpotex reached an agreement
with Sinofert in China on a $5-per-tonne
increase for shipments in 2007. Canpotex
implemented price increases in Brazil that
totaled $175 per tonne by year-end while in
India, a $50-per-tonne increase took effect
on imports in the second quarter. Southeast
Asian customers saw a total of $195 per
tonne in price increases over the course of
2007. The full benefit of announced
offshore price increases was not captured
because of higher ocean freight rates and
locked-in contract pricing to China and
India. Higher ocean freight rates had a
negative impact of about $15 per tonne on
all delivered-basis (CFR) sales. Prices in
the North American market were up 12
percent or $20 per tonne, significantly due
to the price increases implemented
throughout 2007, which totaled $82 per
tonne by year-end. North American prices
were $36 per tonne, or 23 percent, higher
than offshore prices. The gap is due in
part to offshore contracts with prices that
lag behind the North American spot market
price. It also reflects product mix, as
North American customers prefer granular
product that commands a premium over
standard product more typically consumed
offshore.
    
    Higher production levels and 47 fewer
shutdown weeks significantly reduced cost
of goods sold compared to 2006 when
production shutdowns occurred as we
remained true to our strategy of matching
production to market demand. However, the
effect of increased production and lower
natural gas costs and consumption was more
than offset by higher brine inflow
management costs and the impact of foreign
exchange on potash operating costs. Brine
inflow management costs at New Brunswick
and Esterhazy incrementally increased total
average costs by almost $5.50 per tonne
($51.5 million) while a stronger Canadian
dollar relative to the US dollar negatively
impacted cost of goods sold by more than $3
per tonne. Since the costs of brine inflow
were attributed to production of potash
that was mainly sold in the offshore
market, the negative price component of the
cost of goods sold variance was higher for
the offshore market than for North America.




---



##### 



B U S I N E S S  S E G M E N T  R E V I E W


37
 2006 vs 2005
 Highlights
 
    
    PotashCorp entered 2006 with potash
shipments to China at a virtual standstill
as fertilizer buyers negotiated price with
suppliers. India followed the same course 
and both countries deferred purchases,
drawing down inventories until price
settlements were reached in the third
quarter. The China agreement called for a
base price increase of $25 per tonne over
the 2005 contract price. The signing of the
China deal served to spur shipments across
Southeast Asia and Latin America, where
customers had delayed purchasing ahead of
the price settlement. Offshore sales
volumes increased in the latter half of the
year, but still, annual sales volumes were
12 percent lower than 2005.
    
    North American potash demand was
constrained during the first three
quarters of the year as customers delayed
purchasing and relied on inventories in
the face of high fuel costs and low crop
prices.
    
    Reduced sales volumes raised the per-tonne
fixed distribution costs for the year and,
combined with softening prices due to
extended contract negotiations, resulted in
declining margins on offshore potash sales
in 2006. Although North American sales
volumes were down 11 percent compared to
2005, realized prices were 7 percent
higher.
    
    Following our strategy of producing to
meet market demand increased our costs per
tonne during 2006. We incurred 66 plant
shutdown weeks, up from 24 weeks during
2005. In response to increased demand in
the latter part of the year, PotashCorp
   produced a record 2.4 million tonnes during
the fourth quarter, raising 2006 production
to 7.0 million tonnes, down from 8.8 million
tonnes in 2005.
 Sales and Cost of Goods Sold
  
    
    Sales by Canpotex were reduced from 8.2
million to 6.7 million tonnes, contributing
to the 12 percent decline in our offshore
sales volumes. Canpotex shipments to China
and India totaled 2.0 million tonnes, down
40 percent from the 3.3 million tonnes
shipped in 2005. Except for certain
shipments from Russia, China was virtually
absent from the market until late in July
2006 as it waited to conclude new pricing
contracts with suppliers. Brazil took
approximately 1.0 million tonnes of potash
from Canpotex in 2006, a reduction of 4
percent from 2005, although taking 30
percent more potash in fourth-quarter 2006
than in fourth-quarter 2005. Brazil
continued to be affected by a strong real
relative to the US dollar and lower soybean
prices. This pressured margins for Brazilian
farmers and limited credit availability,
leading to fewer acres being planted and a
decrease in imported crop inputs. Hesitancy to
purchase large positions in potash until
conclusion of the Chinese negotiations led
Brazilian customers to delay purchases.
Following the negotiations and coupled with
improving market conditions, Brazils volumes
increased sharply. Sales volumes in 2006
increased to many smaller potash-consuming
countries such as Indonesia, Malaysia, the
Philippines, Taiwan and Vietnam, which together
took 1.7 million tonnes from Canpotex, an
increase of 20 percent over 2005.
  Potash Production (million tonnes KCl)
 Mine SiteProduction
    
    
    EmployeesCapacity
    
    

2007
    
    
    2006
    
    
    2005
    
    
    (active)Lanigan SK
    
    
    3.828
    
    
    
    1.907
    
    
    
    1.471
    
    
    
    2.023
    
    
    
    441Rocanville SK
    
    
    3.044
    
    
    
    2.647
    
    
    
    1.897
    
    
    
    2.573
    
    
    
    354Allan SK
    
    
    1.885
    
    
    
    1.744
    
    
    
    0.992
    
    
    
    1.431
    
    
    
    336Cory SK
    
    
    1.361
    
    
    
    0.768
    
    
    
    0.772
    
    
    
    0.826
    
    
    
    233Patience Lake SK
    
    
    1.033
    
    
    
    0.257
    
    
    
    0.190
    
    
    
    0.251
    
    
    
    70Esterhazy SK*
    
    
    1.313
    
    
    
    1.043
    
    
    
    0.953
    
    
    
    0.953
    
    
    
    0New Brunswick NB
    
    
    .785
    
    
    
    0.793
    
    
    
    0.743
    
    
    
    0.759
    
    
    
    332TOTAL
    
    
    13.249
    
    
    
    9.159
    
    
    
    7.018
    
    
    
    8.816
    
    
    
    1,766
 
 *
    
    PotashCorps mineral rights at Esterhazy are
mined by Mosaic Potash Esterhazy Canada Limited
Partnership under a mining and processing
agreement. For calendar year 2008, our
production allocation is 1.125 million tonnes.




---



##### 



38
    

B
U S I N E S S  S E G M E N T  R E V I E W
  
    
    North American sales volumes dropped for
the year despite a rebound in the fourth
quarter. First- and second-quarter
reductions resulted from reduced field
applications due to low crop prices, high
energy input costs and, to a lesser
degree, weather. Sales volumes were
relatively flat in the third quarter;
however, with demand growing and
record-low inventories, prices for many
crops  including corn, wheat and soybeans  began to rise significantly, giving
farmers the motivation and the resources
to boost their fertilizer use.
    
    Realized prices in the offshore market
were negatively impacted initially by
higher per-unit throughput distribution
costs resulting from the reduced sales
volumes. Higher prices were realized
during the latter part of the year as
potash flowing to China through Canpotex
was at the higher 2006 price. Realized
prices were lower on sales to Brazil due
to increased competition in the
marketplace early in the year, although
they rebounded strongly after completion
of the price negotiations with China and
India.
 NITROGEN RESULTS
 Realized prices in the North American market
were 7 percent higher as price increases
announced during 2005 held into the first half
of 2006, but dropped off during the third
quarter as higher producer inventories at the
start of the quarter contributed to heightened
competitive pressures. Prices rose in the
fourth quarter as our North American price
increase announced for October 1 began to be
realized in November. Prices in the North
American market were $38 per tonne, or 29
percent, higher than offshore prices.
    
    The change in gross margin was negatively
impacted by higher cost of goods sold.
Production shutdowns, higher depreciation
charges due to completion of some of our
expansion projects, higher natural gas
prices earlier in the year and escalating
prices for supplies and services
throughout the year increased unit cost of
goods sold. The impact of a stronger
average Canadian dollar for most of the
year also negatively impacted cost of
goods sold, by more than $3.50 per tonne.
  % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    (Decrease)
    
    Tonnes (thousands)
    
    (Decrease)
    
    Average Price per Tonne
    
    (Decrease)2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006Sales
    
    $
    1,799.9
    
    
    $
    1,284.1
    
    
    $
    1,368.8
    
    
    
    40
    
    
    
    (6
    )Freight
    
    
    55.6
    
    
    
    36.8
    
    
    
    39.9
    
    
    
    51
    
    
    
    (8
    )Transportation
and distribution
    
    
    51.6
    
    
    
    52.2
    
    
    
    49.5
    
    
    
    (1
    )
    
    
    5Net sales
    
    $
    1,692.7
    
    
    $
    1,195.1
    
    
    $
    1,279.4
    
    
    
    42
    
    
    
    (7
    )Manufactured productNet salesAmmonia
    
    $
    664.3
    
    
    $
    499.7
    
    
    $
    490.0
    
    
    
    33
    
    
    
    2
    
    
    
    2,132
    
    
    
    1,695
    
    
    
    1,672
    
    
    
    26
    
    
    
    1
    
    
    $
    311.55
    
    
    $
    294.84
    
    
    $
    293.05
    
    
    
    6
    
    
    
    1Urea
    
    
    468.6
    
    
    
    317.8
    
    
    
    369.5
    
    
    
    47
    
    
    
    (14
    )
    
    
    1,333
    
    
    
    1,199
    
    
    
    1,321
    
    
    
    11
    
    
    
    (9
    )
    
    $
    351.63
    
    
    $
    264.97
    
    
    $
    279.63
    
    
    
    33
    
    
    
    (5
    )Nitrogen solutions,
nitric acid,
ammonium nitrate
    
    
    437.8
    
    
    
    305.4
    
    
    
    284.2
    
    
    
    43
    
    
    
    7
    
    
    
    2,266
    
    
    
    1,781
    
    
    
    1,850
    
    
    
    27
    
    
    
    (4
    )
    
    $
    193.21
    
    
    $
    171.45
    
    
    $
    153.67
    
    
    
    13
    
    
    
    121,570.7
    
    
    
    1,122.9
    
    
    
    1,143.7
    
    
    
    40
    
    
    
    (2
    )
    
    
    5,731
    
    
    
    4,675
    
    
    
    4,843
    
    
    
    23
    
    
    
    (3
    )
    
    $
    274.07
    
    
    $
    240.16
    
    
    $
    236.16
    
    
    
    14
    
    
    
    2Cost of goods sold
    
    
    1,055.6
    
    
    
    821.2
    
    
    
    845.2
    
    
    
    29
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    184.19
    
    
    $
    175.63
    
    
    $
    174.52
    
    
    
    5
    
    
    
    1Gross margin
    
    
    515.1
    
    
    
    301.7
    
    
    
    298.5
    
    
    
    71
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    89.88
    
    
    $
    64.53
    
    
    $
    61.64
    
    
    
    39
    
    
    
    5Other miscellaneous
and purchased productNet sales
    
    
    122.0
    
    
    
    72.2
    
    
    
    135.7
    
    
    
    69
    
    
    
    (47
    )Cost of goods sold
    
    
    101.0
    
    
    
    58.3
    
    
    
    115.5
    
    
    
    73
    
    
    
    (50
    )Gross margin
    
    
    21.0
    
    
    
    13.9
    
    
    
    20.2
    
    
    
    51
    
    
    
    (31
    )Gross Margin
    
    $
    536.1
    
    
    $
    315.6
    
    
    $
    318.7
    
    
    
    70
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    93.54
    
    
    $
    67.51
    
    
    $
    65.81
    
    
    
    39
    
    
    
    3Note 19 to the consolidated financial statements provides information pertaining to our business segments.




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##### 



B U S I N E S S  S E G M E N T  R E V I E W

    39
 Manufactured nitrogen gross margin variance attributable to:Dollars (millions)2007 vs 2006Change in
    
    
    Change in Prices/Costs
    
    
    Total Manufactured NitrogenSales Volumes
    
    
    Net Sales
    
    Cost of Goods Sold
    
    
    Gross Margin VarianceManufactured productAmmonia
    
    $
    53.3
    
    
    
    $
    35.9
    
    
    $
    (15.1
    )
    
    
    $
    74.1Urea
    
    
    11.7
    
    
    
    
    115.5
    
    
    
    (13.0
    )
    
    
    
    114.2Solutions, NA, AN
    
    
    15.3
    
    
    
    
    49.2
    
    
    
    (24.0
    )
    
    
    
    40.5Hedge
    
    
    
    
    
    
    
    
    
    
    
    (14.5
    )
    
    
    
    (14.5
    )Change in product mix
    
    
    5.2
    
    
    
    
    (6.1
    )
    
    
    
    
    
    
    
    (0.9
    )Total
    
    $
    85.5
    
    
    
    $
    194.5
    
    
    $
    (66.6
    )
    
    
    $
    213.4
  2007 vs 2006
 Highlights
 
    
    Nitrogen generated gross margin of
$536.1 million, surpassing the previous
record of $318.7 million set in 2005 and
representing an increase of 70 percent
over that in 2006.
    
    In Trinidad, where we have long-term,
lower-cost natural gas price contracts,
we generated $298.9 million in gross
margin in 2007. Our North American
facilities contributed $178.2 million,
while our natural gas hedging program
added $59.0 million.
    
    Strong fundamentals led to realized
price increases in all major nitrogen
products year over year, with the
exception of ammonium nitrate.
Manufactured fertilizer sales volumes
increased 39 percent with higher
fertilizer demand, as we had more
product to sell than in 2006.
    
    Transportation and distribution costs
declined despite the increase in sales in
2007 compared to 2006. A change in sales
volumes with certain customers lowered
transportation and storage requirements.
North American sales volumes (which had
lower transportation and distribution
costs but higher freight) increased.
Freight increased with higher sales,
higher market freight rates and a 10
percent increase in volume of CFR urea
sales.
    
    Cost of goods sold was negatively
impacted by natural gas costs that,
including our hedge, were 12 percent
higher than 2006. Our hedge gains were
$14.5 million lower than 2006.
 Sales and Cost of Goods Sold
  
    
    Realized prices for urea were up 33
percent on strong agricultural demand,
supplemented by production disruptions in
the Middle
 East and delays in new capacity early in 2007.
Realized prices for ammonia increased only 6
percent as we recovered through the year from
a decline in the first quarter when high
natural gas costs from the aftermath of
Hurricane Katrina increased prices. Tight
fundamentals that pushed ammonia prices up
early in 2007, decoupling them from the price
of natural gas, continued, driven by strong
North American agricultural demand and low
product inventories. Price increases in
nitrogen solutions contributed $62.0 million
to the gross margin increase for the year, as
price increases were significant through the
second, third and fourth quarters. These price
increases were partially offset by a 9 percent
decline in per-tonne realized price for
ammonium nitrate prills because our primary
customer contracts are impacted by natural gas
prices on a time-lag basis. This negatively
impacted gross margin by $14.1 million.
    
    Manufactured ammonia sales volumes were up
26 percent as we benefited from the strong
overall demand for nitrogen, the additional
tonnes available from the final stage of
our Trinidad debottlenecking projects and
from fewer shutdown days at Lima, despite a
planned 35-day turnaround at Augusta during
the fourth quarter. Manufactured urea sales
volumes also increased, due in large part
to significant demand for field
application. Total manufactured fertilizer
sales tonnes were up 39 percent on strong
demand, compared to last year when US
farmers were purchasing less as we believe
they were anticipating lower prices. Total
industrial demand remained strong, rising
15 percent from last year and representing
64 percent of manufactured nitrogen sales
volumes.
    
    Cost of goods sold increased, negatively
impacting gross margin. Our average natural
gas cost was $4.30 per MMBtu, 12 percent
higher than 2006. Costs associated with
production start-ups last year after
completion of the debottlenecking projects
in Trinidad and mechanical problems at our
Lima facility raised costs for
   POTASHCORP 2007 FINANCIAL REVIEW




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##### 



40
    

B
U S I N E S S  S E G M E N T  R E V I E W
  Nitrogen Production(million tonnes)
 Annual
    
    
    ProductionCapacity
    
    
    2007
    
    
    2006
    
    
    2005Ammonia1Trinidad
    
    
    2.177
    
    
    
    2.077
    
    

    
    1.932
    
   

    
    1.887Augusta GA
    
    
    .688
    
    
    
    .610
    
   

    
    .633
    
    

    
    .655Lima OH
    
    
    .588
    
    
    
    .531
    
    

    
    .339
    
    

    
    .382Geismar LA4
    
    
    .483
    
    
    
    
    
    

    
    
    
    

    
    TOTAL
    
    
    3.936
    
    
    
    3.218
    
    

    
    2.904
    
    

    
    2.924Urea SolidsTrinidad
    
    
    .709
    
    
    
    .710
    
    

    
    .688
    
    

    
    .748Augusta GA
    
    
    .431
    
    
    
    .312
    
    

    
    .323
    
    

    
    .360Lima OH
    
    
    .329
    
    
    
    .292
    
    

    
    .186
    
    

    
    .225Geismar LA
    
    
    
    
    
    
    
    
    

    
    
    
    

    
    TOTAL
    
    
    1.469
    
    
    
    1.314
    
    

    
    1.197
    
    

    
    1.333Nitrogen Solutions2Trinidad
    
    
    
    
    
    
    
    
   

    
    
    
    

    
    Augusta GA
    
    
    .581
    
    
    
    .239
    
    

    
    .197
    
    

    
    .242Lima OH
    
    
    .227
    
    
    
    .082
    
   

    
    .071
    
    

    
    .079Geismar LA4
    
    
    1.028
    
    
    
    .520
    
    

    
    .098
    
    

    
    .118TOTAL
    
    
    1.836
    
    
    
    .841
    
    

    
    .366
    
    

    
    .439Nitric Acid1,3Trinidad
    
    
    
    
    
    
    
    
    

    
    
    
    

    
    Augusta GA
    
    
    .541
    
    
    
    .525
    
    

    
    .529
    
   

    
    .518Lima OH
    
    
    .100
    
    
    
    .100
    
   

    
    .098
    
    

    
    .098Geismar LA
    
    
    .844
    
    
    
    .699
    
    

    
    .531
    
    

    
    .568TOTAL
    
    
    1.485
    
    
    
    1.324
    
    

    
    1.158
    
    

    
    1.184Ammonium Nitrate SolidsTrinidad
    
    
    
    
    
    
    
    
   

    
    
    
    

    
    Augusta GA
    
    
    .538
    
    
    
    .540
    
    

    
    .536
    
    

    
    .503Lima OH
    
    
    
    
    
    
    
    
   

    
    
    
    

    
    Geismar LA
    
    
    
    
    
    
    
    
    

    
    
    
    

    
    TOTAL
    
    
    .538
    
    
    
    .540
    
    

    
    .536
    
    

    
    .503EmployeesTrinidad
    
    
    409Augusta GA
    
    
    118Lima OH
    
    
    13
    5Geismar LA
    
    
    62TOTAL
    
    
    602
    6
 
 1
    
    A substantial portion is upgraded to value-added products.2
    
    Based on 32% N content.3
    
    As 100% HNO3 tonnes.4
    
    Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003;
restarted nitrogen solutions production on September 15, 2005 on a demand basis.5
    
    INEOS USA LLC operated the Lima facility under an operational agreement with PCS
Nitrogen until December 31, 2007.6
    
    492 contract employees work at the nitrogen plants, for a total active workforce of
1,094.
 2006 vs 2005
 Highlights
 
    
    Rising global natural gas prices led to nitrogen production curtailments, particularly in
Western Europe, and high prices overseas in 2006. With higher ocean freight also a factor,
less nitrogen from Baltic and Arabian Gulf producers found its way to the US, reducing
competitive pressures in North America.
    
    North American natural gas spot prices dropped significantly throughout 2006 compared to the
high levels seen in late 2005 during the aftermath of hurricanes in the US Gulf region, which
negatively affected realized prices. However, ammonia and urea prices strengthened
significantly later in the year as heightened demand and tight global supply conditions led to
a decoupling from US natural gas costs.
    
    Our Trinidad facility, which benefits from long-term, lower-cost natural gas price contracts,
delivered $182.5 million (or 58 percent) of nitrogen gross margin for the year. Our US
operations contributed $59.6 million in gross margin, and we gained $73.5 million from our
natural gas hedges during the year.
 Sales and Cost of Goods Sold
  
    
    High natural gas prices that were sustained at more than $13 per MMBtu during the fourth
quarter of 2005 caused ammonia prices to climb rapidly in late 2005 and led to industry
production curtailments, tightening market supply. Though North American natural gas spot
prices dropped significantly during the first half of 2006, ammonia and urea prices continued
to exceed 2005 levels until the third quarter. Tight global supply conditions led to nitrogen
prices decoupling from gas costs through the second half of 2006, but fourth-quarter ammonia
and urea prices were lower compared to the peaks reached in fourth-quarter 2005 when the
aftermath of Hurricane Katrina was still affecting natural gas costs. Realized




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##### 



B U S I N E S S  S E G M E N T  R E V I E W

    41
   annual manufactured ammonia prices were 1 percent higher
than in 2005 although manufactured urea
prices were 5 percent lower. Realized prices for manufactured nitric acid and ammonium nitrate
generally followed the rise in ammonia prices. Higher manufactured ammonium nitrate realized prices
contributed a favorable $29.6 million to the change in gross margin as a result of our customer
contracts tied to either natural gas prices or the NOLA ammonia price, but on a quarterly time-lag
basis.
    
    Total manufactured nitrogen sales volumes declined by 3 percent. Manufactured nitrogen
fertilizer sales represented the majority of this drop, down 23 percent primarily due to
mechanical production problems and gas input supply constraints.
    
    Cost of goods sold declined on a per-tonne basis, positively contributing to the change in

gross margin by $2.6 million. Higher natural gas costs earlier in 2006
curtailed production at

Augusta and Lima. Mechanical problems at Lima also limited its production in the second and
third quarters. Finally, reduced production at our 01 and 02 plants in Trinidad due to
additional plant turnarounds related to debottlenecking projects increased costs. These were
partially offset by lower natural gas costs later in the
 
    PHOSPHATE RESULTS
  % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    
    (Decrease)
    
    
    Tonnes (thousands)
    
    
    (Decrease)
    
    
    Average Price per Tonne
    
    
    (Decrease)2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006Sales
    
    $
    1,637.1
    
    
    $
    1,255.1
    
    
    $
    1,137.3
    
    
    
    30
    
    
    
    10Freight
    
    
    112.4
    
    
    
    88.5
    
    
    
    80.1
    
    
    
    27
    
    
    
    10Transportation
and distribution
    
    
    33.4
    
    
    
    43.1
    
    
    
    37.9
    
    
    
    (23
    )
    
    
    14Net sales
    
    $
    1,491.3
    
    
    $
    1,123.5
    
    
    $
    1,019.3
    
    
    
    33
    
    
    
    10Manufactured
productNet salesFertilizer
 liquids
    
    $
    283.4
    
    
    $
    206.6
    
    
    $
    175.2
    
    
    
    37
    
    
    
    18
    
    
    
    983
    
    
    
    911
    
    
    
    818
    
    
    
    8
    
    
    
    11
    
    
    $
    288.37
    
    
    $
    226.89
    
    
    $
    214.21
    
    
    
    27
    
    
    
    6Fertilizer
 solids
    
    
    607.5
    
    
    
    391.6
    
    
    
    346.7
    
    
    
    55
    
    
    
    13
    
    
    
    1,623
    
    
    
    1,634
    
    
    
    1,516
    
    
    
    (1
    )
    
    
    8
    
    
    $
    374.22
    
    
    $
    239.64
    
    
    $
    228.61
    
    
    
    56
    
    
    
    5Feed
    
    
    272.7
    
    
    
    238.4
    
    
    
    222.2
    
    
    
    14
    
    
    
    7
    
    
    
    814
    
    
    
    778
    
    
    
    862
    
    
    
    5
    
    
    
    (10
    )
    
    $
    335.03
    
    
    $
    306.63
    
    
    $
    257.72
    
    
    
    9
    
    
    
    19Industrial
    
    
    277.4
    
    
    
    239.7
    
    
    
    231.2
    
    
    
    16
    
    
    
    4
    
    
    
    731
    
    
    
    647
    
    
    
    664
    
    
    
    13
    
    
    
    (3
    )
    
    $
    379.47
    
    
    $
    370.33
    
    
    $
    348.12
    
    
    
    2
    
    
    
    61,441.0
    
    
    
    1,076.3
    
    
    
    975.3
    
    
    
    34
    
    
    
    10
    
    
    
    4,151
    
    
    
    3,970
    
    
    
    3,860
    
    
    
    5
    
    
    
    3
    
    
    $
    347.14
    
    
    $
    271.14
    
    
    $
    252.62
    
    
    
    28
    
    
    
    7Cost of goods sold
    
    
    1,019.5
    
    
    
    958.7
    
    
    
    881.8
    
    
    
    6
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    245.60
    
    
    $
    241.52
    
    
    $
    228.40
    
    
    
    2
    
    
    
    6Gross margin
    
    
    421.5
    
    
    
    117.6
    
    
    
    93.5
    
    
    
    258
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    101.54
    
    
    $
    29.62
    
    
    $
    24.22
    
    
    
    243
    
    
    
    22Other miscellaneousand purchased
productNet sales
    
    
    50.3
    
    
    
    47.2
    
    
    
    44.0
    
    
    
    7
    
    
    
    7Cost of goods sold
    
    
    39.0
    
    
    
    39.5
    
    
    
    38.6
    
    
    
    (1
    )
    
    
    2Gross margin
    
    
    11.3
    
    
    
    7.7
    
    
    
    5.4
    
    
    
    47
    
    
    
    43Gross Margin
    
    $
    432.8
    
    
    $
    125.3
    
    
    $
    98.9
    
    
    
    245
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    104.26
    
    
    $
    31.56
    
    
    $
    25.62
    
    
    
    230
    
    
    
    23




---



##### 



42

B
U S I N E S S  S E G M E N T  R E V I E W
   Manufactured phosphate gross margin variance attributable to:Dollars (millions)2007 vs 2006Change in
    
    
    Change in Prices/Costs
    
    
    Total Manufactured PhosphateSales Volumes
    
    
    Net Sales
    
    Cost of Goods Sold
    
    
    Gross Margin VarianceManufactured productFertilizer  liquids
    
    $
    10.3
    
    
    
    $
    59.7
    
    
    $
    (5.7
    )
    
    
    $
    64.3Fertilizer  solids
    
    
    (1.1
    )
    
    
    
    218.8
    
    
    
    (2.6
    )
    
    
    
    215.1Feed
    
    
    6.7
    
    
    
    
    23.1
    
    
    
    (16.7
    )
    
    
    
    13.1Industrial
    
    
    20.7
    
    
    
    
    6.6
    
    
    
    (16.1
    )
    
    
    
    11.2Change in product mix
    
    
    (8.9
    )
    
    
    
    6.8
    
    
    
    2.3
    
    
    
    
    0.2Total
    
    $
    27.7
    
    
    
    $
    315.0
    
    
    $
    (38.8
    )
    
    
    $
    303.9
 2007 vs 2006
 Highlights
 
    
    While strategic focus on our unique
ability to produce and market specialty
phosphate products has brought stability
and increased profitability to the
phosphate segment in recent years,
strengthening global agricultural
fundamentals have begun to demonstrate the
value of our leverage in liquid and solid
phosphate fertilizers. Phosphate gross
margin was $432.8 million, surpassing our
previous record of $230.1 million set in
1998.
    
    Solid fertilizers generated $205.8
million in gross margin during 2007,
while liquid fertilizers added $88.2
million, feed $67.3 million and
industrial products $60.2 million.
    
    Transportation and distribution costs
declined 23 percent in 2007 despite the
increase in sales, for offshore sales
volumes of solid fertilizers fell as the
company focused on the North American
market. Freight increased more than sales
due to higher market freight rates and
changes in customer and destination mix
that required more freight.
 Sales and Cost of Goods Sold
  
    
    Realized prices were up in all major
product categories, for two main reasons:
strong agricultural demand and the global
impact of higher demand for inputs such as
sulfur, phosphate rock and ammonia. As
producers around the world allocated more
phosphoric acid to manufacturing solid
fertilizers, markets for liquid, feed and
industrial products were squeezed. Pricing
for phosphate products sold on spot
markets moved up significantly, while
certain industrial products rose on a
delayed basis.
Realized prices for manufactured solid and
liquid fertilizers increased by 56 percent
and 27 percent, respectively, while
manufactured feed prices rose by 9 percent
and industrial manufactured prices by 2
percent.
    
    Manufactured solid fertilizer sales
volumes declined 1 percent overall as we
sold fewer tonnes in order
to deliver on liquid phosphate demand. Our
liquid phosphate fertilizer capability
      Phosphate Feed Production (million tonnes)Annual
    
    Production
    
    EmployeesCapacity
    
    2007
    
    2006
    
    2005
    
    (active)Marseilles IL
    
    
    .278
    
    
    
    .132
    
    
    
    .119
    
    
    
    .127
    
    
    
    25White Springs FL (Monocal)
    
    
    .272
    
    
    
    .191
    
    
    
    .192
    
    
    
    .190
    
    
    
    26Weeping Water NE
    
    
    .209
    
    
    
    .110
    
    
    
    .117
    
    
    
    .119
    
    
    
    34Joplin MO
    
    
    .163
    
    
    
    .071
    
    
    
    .082
    
    
    
    .080
    
    
    
    25Aurora NC (DFP)
    
    
    .159
    
    
    
    .084
    
    
    
    .085
    
    
    
    .115
    
    
    
    28White Springs FL (DFP)1
    
    
    .100
    
    
    
    
    
    
    
    
    
    
    
    .044
    
    
    
    0Fosfatos do Brasil
    
    
    .110
    
    
    
    .056
    
    
    
    .049
    
    
    
    .076
    
    
    
    82TOTAL
    
    
    1.291
    
    
    
    .644
    
    
    
    .644
    
    
    
    .751
    
    
    
    2201 Ceased production July 31, 2005.




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##### 



B U S I N E S S  S E G M E N T  R E V I E W

    43


allowed us to capitalize on significantly
higher US demand, selling 15 percent more
there than in the same period last year as we
focused on these markets ahead of
lower-netback offshore regions. Total
manufactured liquid fertilizer sales volumes
increased 8 percent. Manufactured industrial
sales volumes were 13 percent higher due to
increased production at our newest Aurora
purified acid plant. Manufactured feed sales
volumes were up 5 percent.
    
    Rising costs for ammonia, sulfur and
phosphate rock negatively impacted
phosphate gross margin. Greater demand
from the phosphate sector challenged
global sulfur supply in the latter part of
2007, particularly in the international
market. The impact of this was also felt
in North America and, as a result, our
sulfur costs rose 4 percent and negatively
impacted gross margin by $6.2 million
compared to 2006. Ammonia costs, which
were 5 percent higher, reduced gross
margin by $5.9 million compared to 2006.
Costs were further increased by 5 percent
higher rock costs resulting from higher
electrical and chemical processing costs
at Aurora and White Springs and two
planned dragline turnarounds at Aurora.
These higher prices were partially offset
as the company had recognized in 2006 an
impairment loss of $6.3 million within the
liquid fertilizer component. The
unfavorable cost variance in feed and
industrial was higher than in solid and
liquid fertilizers. In feed, higher
maintenance costs
 negatively impacted costs. Industrial was
negatively impacted by higher electricity
costs, higher maintenance and a higher
proportionate share of Geismar fixed costs
allocated to it after the shutdown of two
product lines there in 2006. Despite the higher
ammonia cost noted above, solid fertilizer
costs were relatively constant due, in part, to
a change in product mix within the solid
fertilizer category as we produced less DAP and
more MAP, which consumes less ammonia.
 2006 vs 2005
 Highlights
 
    
    In 2006, phosphate generated $125.3
million in gross margin, 27 percent
higher than the $98.9 million in 2005.
Phosphate gross margin was negatively
impacted by a $6.3 million writedown of
assets at Geismar during 2006.
 Purified Acid Production(million
tonnes P2O5)
 Annual
    
    ProductionCapacity
    
    2007
    
    2006
    
    2005Aurora NC
    
    
    .333
    
    
    
    .268
    
    
    
    .245
    
    
    
    .248
   Rock and Acid Production
 Phosphate Rock Production (million tonnes)
    
    
    

Phosphoric
Acid (million tonnes P2O5)Annual
    
    
    
    
    
    
    Production
    
    
    
    
    
    
    
    Annual
    
    
    
    
    
    
    Production
    
    
    
    
    
    
    
    EmployeesCapacity
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    
    Capacity
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    
    (active)Aurora NC
    
    
    6.000
    
    
    
    4.086
    
    
    
    4.577
    
    
    
    4.417
    
    
    
    
    1.202
    
    
    
    1.083
    
    
    
    1.080
    
    
    
    1.048
    
    
    
    
    1,043White Springs FL
    
    
    3.600
    
    
    
    3.226
    
    
    
    3.114
    
    
    
    3.186
    
    
    
    
    .966
    
    
    
    .925
    
    
    
    .881
    
    
    
    .865
    
    
    
    
    875Geismar LA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .202
    
    
    
    .156
    
    
    
    .147
    
    
    
    .184
    
    
    
    
    77TOTAL
    
    
    9.600
    
    
    
    7.312
    
    
    
    7.691
    
    
    
    7.603
    
    
    
    
    2.370
    
    
    
    2.164
    
    
    
    2.108
    
    
    
    2.097
    
    
    
    
    1,995
 Phosphate Production(million tonnes product)
 Aurora
    
    
    
    White Springs
    
    
    
    GeismarAnnual
    
    
    
    
    
    
    Production
    
    
    
    Annual
    
    
    
    
    
    
    Production
    
    
    
    Annual
    
    
    
    
    
    
    ProductionCapacity
    
    
    
    
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    
    Capacity
    
    
    
    
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    
    Capacity
    
    
    
    
    
    
    2007
    
    
    2006
    
    
    2005Liquids: MGA1
    
    
    1.835
    
    
    
    
    
    
    
    1.740
    
    
    
    1.722
    
    
    
    1.697
    
    
    
    
    1.908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .337
    
    
    
    
    
    
    
    .258
    
    
    
    .241
    
    
    
    .304SPA
    
    
    .676
    
    
    
    
    
    
    
    .376
    
    
    
    .353
    
    
    
    .149
    
    
    
    
    1.138
    
    
    
    
    
    
    
    .793
    
    
    
    .655
    
    
    
    .719
    
    
    
    
    .196
    
    
    
    
    
    
    
    
    
    
    
    .015
    
    
    
    .059Solids (total)
    
    
    1.247
    
    
    DAP
    
    
    .548
    
    
    
    .609
    
    
    
    .495
    
    
    
    
    .710
    
    
    DAP
    
    
    .375
    
    
    
    .495
    
    
    
    .477
    
    
    
    
    
    
    
    DAP
    
    
    
    
    
    
    
    
    
    
    MAP
    
    
    .389
    
    
    
    .372
    
    
    
    .413
    
    
    
    
    
    
    
    MAP
 
    
    .286
    
    
    
    .159
    
    
    
    .172
    
    
    
    
    
    
    
    MAP
    
    
    
    
    
    
    
    
    
    
    DAP/MAP (total)
    
    
    
    
    
    
    
    
    
    
    .937
    
    
    
    .981
    
    
    
    .908
    
    
    
    
    
    
    
    
    
    
    
    
    .661
    
    
    
    .654
    
    
    
    .649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     1
    
    A substantial portion of Aurora and Geismar production and all White Springs
production is consumed internally to make downstream products. The balance is exported to
phosphate fertilizer producers and sold domestically to dealers who custom-mix liquid
fertilizer.




---



##### 



44


E X P E N S E S  &  O T H E R  I N C O M E
   Phosphate Products for Food and Technical Applications
 Cincinnati, OH
 2007
    
    
    
    2006
    
    
    
    2005Purified acid feedstock utilized (tonnes
P2O5)
    
    
    13,465
    
    
    
    13,303
    
    
    
    13,426Product tonnes processed:Acid phosphates
    
    
    17,473
    
    
    
    17,253
    
    
    
    17,430Specialty phosphates
    
    
    11,281
    
    
    
    11,201
    
    
    
    11,607
 
    
    Price increases were realized in all major product categories, in response
to continuing high input costs and reasonably tight supply/demand fundamentals.
    
    Specialty products remained the foundation of our phosphate business,
proving their value as stable, higher-margin businesses. Manufactured feed and industrial products
contributed $54.3 million and $49.2 million of 2006 gross margin, respectively, while
liquid fertilizer, which was directly impacted by the above-mentioned writedown,
added $24.2 million for the year after the writedown. Within industrial, purified
phosphoric acid was again the most profitable product, generating gross margin of
$47.3 million for the year, representing 27 percent of net sales.
 Sales and Cost of Goods Sold
  
    
    Higher prices realized in the feed and fertilizer markets,
due to
tight industry fundamentals, were supplemented by industrial
price increases implemented in 2005 that held through 2006.
 Higher feed prices implemented as a result of a strong pricing stance over volumes contributed
$38.8 million to the gross margin increase. Of this increase, monocal represented $22.6 million
due to higher realized prices achieved in both the North American and offshore markets. Fertilizer
prices contributed positively to the change in gross margin due to stronger demand.
    
    Manufactured sales volumes were relatively flat, although there was a change in product mix.
Manufactured fertilizer sales volumes improved, contributing $31.7 million to the change in
gross margin, as supply/demand fundamentals were strong. This was partially offset by a 10
percent decline in manufactured feed sales volumes resulting from our decision to remain firm
on pricing and reduce sales of lower-margin products, and a 3 percent decline in manufactured
industrial sales volumes due to reduced market demand.
    
    The price variance in cost of goods sold negatively impacted the change in gross margin by
$84.1 million, primarily due to higher raw material costs and a change in product mix.
However, 8 percent higher sulfur prices and 7 percent higher ammonia prices combined to reduce
gross margin by $11.4 million and $8.1 million, respectively. Phosphate rock costs were up 5
percent as a result of higher costs for purchased rock at Geismar and higher electrical and
chemical processing costs at Aurora and White Springs. The writedown of assets, a change in
product mix (requiring more ammonia to be used), higher depreciation charges and escalating
prices for supplies and services throughout the year further increased costs.


EXPENSES AND OTHER INCOME
  Dollars (millions), except percentage amounts
    
    % Increase (Decrease)2007
    
    
    % of Sales
    
    
    2006
    
    
    % of Sales
    
    
    2005
    
    
    % of Sales
    
    
    2007
    
    
    
    2006Selling and administrative
    
    $
    212.6
    
    
    
    4
    
    
    $
    158.4
    
    
    
    4
    
    
    $
    144.5
    
    
    
    4
    
    
    
    34
    
    
    
    10Provincial mining and other taxes
    
    
    135.4
    
    
    
    3
    
    
    
    66.5
    
    
    
    2
    
    
    
    137.2
    
    
    
    4
    
    
    
    104
    
    
    
    (52
    )Foreign exchange loss (gain)
    
    
    70.2
    
    
    
    1
    
    
    
    (4.4
    )
    
    
    
    
    
    
    12.5
    
    
    
    
    
    
    
    n/m
    
    
    
    n/mOther income
    
    
    125.5
    
    
    
    2
    
    
    
    94.0
    
    
    
    2
    
    
    
    61.8
    
    
    
    2
    
    
    
    34
    
    
    
    52Interest expense
    
    
    68.7
    
    
    
    1
    
    
    
    85.6
    
    
    
    2
    
    
    
    82.3
    
    
    
    2
    
    
    
    (20
    )
    
    
    4Income tax expense
    
    
    416.2
    
    
    
    8
    
    
    
    158.1
    
    
    
    4
    
    
    
    267.4
    
    
    
    7
    
    
    
    163
    
    
    
    (41
    )n/m = not meaningful
 POTASHCORP
2007 FINANCIAL REVIEW






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##### 



E X P
E N S E S   &   O T H E R    I N C O M E

    45
  2007 vs 2006
 2007
    
    
    2006
    
    
    Change
    
    
    % ChangeLong-term
debt obligations, 
including current portionWeighted average outstanding
    
    $
    1,557.3
    
    
    $
    1,296.7
    
    
    $
    260.6
    
    
    
    20Weighted average interest rate
    
    
    6.6%
    
    
    
    6.9%
    
    
    
    (0.3)%
    
    
    
    (4)Short-term debt obligationsWeighted average outstanding
    
    $
    95.7
    
    
    $
    518.8
    
    
    $
    (423.1)
    
    
    
    (82)Weighted average interest rate
    
    
    5.4%
    
    
    
    5.2%
    
    
    
    0.2%
    
    
    
    4
   
    
    A scheduled 2 percentage point reduction in the Canadian federal income tax rate applicable
to resource companies, effective at the beginning of 2007, and a reduction of the future
income tax rate enacted during the fourth quarter of 2007 were offset by a higher percentage
of consolidated income earned in higher-tax jurisdictions during 2007 compared to 2006.
 
    
    During the fourth quarter of 2007, the Government of Canada enacted a reduction of the
federal corporate income tax rate from




---



##### 



46


E
X P E N S E S  
&   O T H E R   I N C O M E
  21 percent in 2007 to 15 percent by 2012. This was in addition to a small change enacted in the
second quarter of 2007. These changes reduced our future income tax liability by $40.1 million. In
2006, changes were enacted by the Government of Canada to reduce the federal corporate income tax
rate and the federal corporate surtax, reducing our future income tax liability by $22.9 million at
that time.
    
    During 2006, the Province of Saskatchewan enacted changes to the corporate income tax that
resulted in a $21.9 million reduction in our future income tax liability in that year.
    
    In 2006, income tax refunds totaling $34.1 million were recorded.
  2006 vs 2005
 
    
    During 2006, we reduced our consolidated effective income tax rate from 33 percent to 30
percent, primarily due to two factors that occurred during the year. First, the Province of
Saskatchewan enacted changes to the corporate income tax, reducing the rate from 17 percent to
12 percent over the next three years. The impact of this change, reducing our future income
tax liability by $21.9 million, was also recognized during the year. Second, we revised our
estimated allocation of annual income before income taxes by jurisdiction as a result of a
decrease in expected potash operating income in Canada.
    
    During 2006, the Government of Canada enacted changes to the federal corporate income tax and
the corporate surtax. The corporate income tax rate will be reduced from 21 percent to 19
percent over the next four years and the corporate surtax will be reduced from 1.12 percent to
nil in 2008. The $22.9 million




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##### 



Q U A
R T E R L Y  R E S U L T S

    47
  impact of this change that reduced our future income tax liability was recognized during 2006.
    
    Income tax refunds totaling $34.1 million were recorded, relating to a recent Canadian appeal
court decision (pertaining to a uranium producer) that affirmed the deductibility of the
Saskatchewan capital tax resource surcharge.
 
   Impact of Foreign Exchange
 
 Impact on net
incomeDollars (millions), except per-share amounts2007
    
    
    
    2006Operating income increase
before income taxes
    
    $
    40.5
    
    
    $
    8.6Net income increase
    
    
    28.3
    
    
    
    6.0Diluted net income per share increase
    
    
    0.09
    
    
    
    0.02
 QUARTERLY RESULTS AND REVIEW OF FOURTH-QUARTER
PERFORMANCE
  2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Total
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales
    
    $
    1,154.7
    
    
    $
    1,353.1
    
    
    $
    1,295.0
    
    
    $
    1,431.4
    
    
    $
    5,234.2
    
    
    $
    861.6
    
    
    $
    928.7
    
    
    $
    953.5
    
    
    $
    1,022.9
    
    
    $
    3,766.7Less: Freight
    
    
    81.9
    
    
    
    92.3
    
    
    
    80.6
    
    
    
    91.3
    
    
    
    346.1
    
    
    
    54.9
    
    
    
    62.3
    
    
    
    65.6
    
    
    
    73.0
    
    
    
    255.8Transportation and distribution
    
    
    31.0
    
    
    
    32.6
    
    
    
    31.0
    
    
    
    29.5
    
    
    
    124.1
    
    
    
    31.2
    
    
    
    35.8
    
    
    
    37.6
    
    
    
    29.5
    
    
    
    134.1Cost of goods sold
    
    
    672.1
    
    
    
    726.8
    
    
    
    708.3
    
    
    
    775.6
    
    
    
    2,882.8
    
    
    
    572.0
    
    
    
    577.2
    
    
    
    604.5
    
    
    
    621.1
    
    
    
    2,374.8Gross margin
    
    
    369.7
    
    
    
    501.4
    
    
    
    475.1
    
    
    
    535.0
    
    
    
    1,881.2
    
    
    
    203.5
    
    
    
    253.4
    
    
    
    245.8
    
    
    
    299.3
    
    
    
    1,002.0Operating income
    
    
    308.3
    
    
    
    422.3
    
    
    
    406.2
    
    
    
    451.7
    
    
    
    1,588.5
    
    
    
    192.1
    
    
    
    194.7
    
    
    
    223.2
    
    
    
    265.5
    
    
    
    875.5Net income
    
    
    198.0
    
    
    285.7
    
    
    
    243.1
    
    
    
    376.8
    
      
    1,103.6
    
    
    
    125.5
    
    
    
    175.1
    
    
    
    145.2
    
    
    
    186.0
    
    
    
    631.8Net income
per share  basic
    
    
    0.63
    
        
    0.91
    
    
    
    0.77
    
    
    
    1.19
    
    
    
    3.50
    
    
    
    0.40
    
    
    
    0.56
    
    
    
    0.47
    
    
    
    0.59
    
    
    
    2.03Net income
per share  diluted
    
    
    0.62
    
    
    
    0.88
    
    
    
    0.75
    
    
    
    1.16
    
    
    
    3.40
    
    
    
    0.40
    
    
    
    0.55
    
    
    
    0.46
    
    
    
    0.58
    
    
    
    1.98Potash gross margin
    
    
    174.2
    
    
    
    260.4
    
        
    221.3
    
    
    
    256.4
    
    
    
    912.3
    
    
    
    90.8
    
    
    
    132.8
    
    
    
    153.6
    
    
    
    183.9
    
    
    
    561.1Nitrogen gross margin
    
    
    131.3
    
    
    
    144.2
    
    
    
    123.9
    
    
    
    136.7
    
    
    
    536.1
    
    
    
    79.4
    
    
    
    91.7
    
    
    
    62.4
    
    
    
    82.1
    
    
    
    315.6Phosphate gross margin
    
    
    64.2
    
    
    
    96.8
    
    
    
    129.9
    
    
    
    141.9
    
    
    
    432.8
    
    
    
    33.3
    
    
    
    28.9
    
    
    
    29.8
    
    
    
    33.3
    
    
    
    125.3




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##### 



48


Q
U A R T E R L Y   R E S U L T S
  
    
    Potash gross margin of $256.4 million approached the record $260.4 million of this years
second quarter and was 39 percent higher than the $183.9 million of last years fourth
quarter. As a percentage of net sales, potash gross margin increased to 60 percent from 57
percent in last years fourth quarter, and from 58 percent in the third quarter of 2007.
Realized prices to offshore markets were up $36 per tonne over 2006, but the full benefit of
announced offshore price increases was not captured because of higher ocean freight rates and
locked-in contract pricing to China and India. In the North American spot market, our realized
prices were $48 per tonne higher than in 2006 and $19 per tonne above last quarter. Total
potash sales volumes of 2.3 million tonnes were 5 percent above last year, when offshore
markets were actively restocking after purchasing delays earlier in 2006. Offshore, sales
volumes of 1.5 million tonnes were 10 percent higher than in the previous year. Our North
American sales volumes were just slightly lower than the previous years very strong
fourth-quarter sales. Our potash production reached a quarterly record of 2.5 million tonnes,
6 percent higher than in 2006 as we saw the benefit of additional tonnes after the completion
of our Allan project in 2007. The stronger Canadian dollar raised potash cost of goods sold by
about $8 per tonne compared to last year, while continuing higher brine inflow costs at New
Brunswick and Esterhazy had a further negative impact of $6 per tonne.
 
    
    On the foundation of continuing strong agricultural demand and higher natural gas prices,
nitrogen gross margin of $136.7 million was the second highest quarterly total in company
history, 67 percent above the same quarter in 2006 and trailing only the second quarter of
2007. Our Trinidad operation generated $73.9 million in gross margin, while our US operations
added $45.1 million and natural gas hedging gains contributed $17.7 million. With the
continuation of tight supply/demand fundamentals, realized prices for manufactured ammonia and
urea were up 9 percent (+$25 per tonne) and 46 percent
(+$120 per tonne), respectively, from 2006. The significant price improvements for these products
were achieved since the third quarter of 2007, with ammonia 11 percent higher (+$31 per
 tonne) and urea up 14 percent (+$46 per tonne). Prices for nitrogen solutions were up 52 percent
quarter over quarter. Total manufactured nitrogen sales volumes of 1.4 million tonnes were up 19
percent from 2006 levels, built on strong US agricultural demand. This was achieved even though
production was flat, as our Augusta facility took a planned 35-day turnaround during the quarter.
We again opportunistically produced nitrogen solutions at our Geismar facility from imported
ammonia and purchased carbon dioxide, enabling us to increase total manufactured sales volumes for
this product by 160 percent quarter over quarter and add an extra $13.6 million to the gross margin
increase.
    
    Driven by continued strong sales volumes and higher pricing in all major product categories,
phosphate generated record quarterly gross margin of $141.9 million in the fourth quarter of
2007, exceeding the total in the same quarter of 2006 by $108.6 million. Solid phosphate
fertilizers continued their strong turnaround, generating $70.3 million in gross margin, while
liquid fertilizer at $31.5 million, feed at $22.3 million and industrial products at $14.9
million were consistent contributors. Our realized prices were up from a year earlier in all
major product categories, in part because of strong agricultural demand and in part due to the
global impact of higher costs for inputs such as sulfur, phosphate rock and ammonia. Pricing
for phosphate products sold on spot markets moved dramatically upward, while certain
industrial products rose on a delayed basis. Our manufactured solid fertilizer realized prices
were up 82 percent (+$192 per tonne) compared to the same quarter in 2006, while liquid
fertilizer rose 37 percent
(+$86 per tonne), feed 22 percent (+$67 per tonne) and industrial products 6 percent (+$22 per
tonne). North American manufactured sales volumes for liquid fertilizer were up 9 percent and solid
fertilizers were 22 percent higher than the previous years fourth quarter, as we focused on these
markets ahead of lower-netback offshore regions. Total liquid and solid fertilizer manufactured
sales volumes were 2 percent higher and 3 percent lower than in 2006, respectively. Manufactured
feed sales volumes rose 12 percent quarter over quarter, driven by a 32 percent increase in sales
to offshore markets, primarily in Latin America. Manufactured industrial sales volumes were 17
percent higher than the fourth quarter of 2006 as a result of stronger demand for phosphoric acid
and retail technical grade purified acid. Our sulfur costs rose 49 percent from the fourth quarter
of 2006 and 30 percent from the trailing quarter.
 
    
    Selling and administrative expenses were substantially higher in 2007, due largely to
valuation of deferred share units that were directly impacted by the significant upward
movement in our share price.




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##### 



K
E Y  E A R N I N G S  S E N S I T I V I T I E S

    49
 
 
    
    The Canadian dollar strengthened slightly against the US dollar during the fourth quarter of
2007 and the translation of Canadian dollar-denominated monetary items contributed to a $2.8
million foreign exchange loss during this period. This compared to a gain of $13.6 million
during last years fourth quarter when the US dollars strengthening had a significant
effect.
    
    Other income declined $7.5 million despite dividend income increasing $10.6 million and our
share of earnings from equity investees contributing an additional $2.6 million, as a $26.5
million provision for other-than-temporary impairment
 of investments in auction rate securities held within our trading account was recognized during
the quarter.
    
    Reductions to the Canadian federal corporate income tax rate between 2008 and 2012 were
enacted in the quarter, which decreased our future income tax liability and income tax
expense by $35.4 million and contributed to the reduction in our consolidated effective
income tax rate from the previous 33 percent estimate back down to 30 percent. This was
supplemented by more permanent deductions generated in the US than previously forecast and a
reduction in our US blended state income tax rate.
   KEY
EARNINGS SENSITIVITIES
  INPUT COST SENSITIVITIES
    
    
    
    Effect
    
    
    PRICE AND VOLUME SENSITIVITIES
    
    Effecton EPS
    
    
    


    on EPSNYMEX
gas price increases by $1/MMBtu
    
    Nitrogen
    
    + 0.03
    
    
    Price
    
    Potash changes by $20/tonne
    
    ± 0.34Potash
    
    - 0.02
    
    
    
    
    DAP/MAP changes by $20/tonne
    
    ± 0.06Sulfur
changes by $20/long ton
    
    
    
    
    
    
    
    
    Ammonia increases by $20/tonnePhosphate
    
    ± 0.09
    
    
    
    
     Nitrogen
    
    + 0.04 Phosphate
    
    - 0.01Canadian
to US dollar strengthens by $0.01
    

Canadian operatingexpenses net of
provincial taxes
    
    
    
    
    
    
    Urea changes by $20/tonne
    
    ± 0.05- 0.01





    
    Volume
    
    Potash changes by 100,000 tonnes
    
    ± 0.05Nitrogen changes by 50,000 N tonnes
    
    - 0.03Translation gain/loss
    
    - 0.01
    
    
    
    
    Phosphate changes by 50,000
P2O5
tonnes
    
    - 0.05
  INDICATORS TO WATCH IN 2008Fertilizer
    
    
    
    
    Feed and Industrial Weather and global acreage planted

 Ethanol and biodiesel developments

 US corn acres

 US dollar exchange rates with global currencies

 Global crop prices

 Ocean freight rates

  Prices for natural gas, ammonia and sulfur

 EU and US nitrogen curtailments

 Brazils weather, soybean prices, credit policy, soybean acres planted
    
     Chinas agricultural taxes, subsidies, corn exports, soybean imports

 Chinas policy on exporting phosphate rock, DAP/MAP and urea


 Indias subsidy policy

 Indias urea and DAP production levels

 US progress on new Farm Bill

 Project capital costs

 New capital project announcements


    


    


     Health of US and world economies

 Effect of livestock-based disease restrictions on world trade, e.g. avian flu, foot and mouth disease


 Potential tightening of restrictions on the use of meat and bone meal in animal feeds

 Impact of residual grain from ethanol production on US feed phosphate consumption

 Consumer spending, housing starts, household improvements, and vehicle production and sales




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##### 



50


2
0 0 8
  O U T L O O K
  1 Economy
  2 Global Protein Consumption
  3 Biofuels
 4 Crop Prices
  5 N, P and K
  6 Potash
   (BAR CAHRT)
    

(BAR CHART)




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##### 



2
0 0 8   O U T L O O K
    

51
  7 Natural Gas
  8 Nitrogen
  9 Phosphates




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##### 



52


F I N A N C I A L   C O N D I T I O N   R E V I E W
  FINANCIAL CONDITION REVIEW
  
    
    The fair values of available-for-sale investments are recorded as assets on the Consolidated
Statements of Financial Position. The company classified its investments in ICL and Sinofert
as available-for-sale and therefore has recorded these investments at their fair value,
resulting in a balance of unrealized holding gains in investments of $2,334.1 million,
accumulated other comprehensive income of $2,133.7 million and future income tax liability of
$200.4 million as of December 31, 2007. The total balance recorded in investments related to
ICL and Sinofert as of December 31, 2007 was $2,725.5 million. In previous periods these
investments had been recorded at cost which, as of December 31, 2006 and December 31, 2007,
was $167.7 million for ICL and $223.7 million for Sinofert.
 
    
    Derivative instruments are generally recorded on the Consolidated Statements of Financial
Position at fair value. At December 31, 2007, the fair value of our derivative instrument
assets represented a current asset of $30.8 million and a long-term asset of $104.2 million.
Of the total, $127.7 million related to natural gas swap, option and physical gas purchase
contracts, with $127.6 million of the swap contracts designated as accounting hedges, and
$7.3 million related to foreign currency and other forward purchase contracts. As of December
31, 2006, no such derivative instrument assets were recorded on the balance sheet. As of
December 31, 2007, the current portion of derivative instrument liabilities of $0.2 million
related to natural gas contracts was included in accounts payable and accrued charges. Net
gains of $73.5 million on the contracts designated as accounting hedges have been recognized
in accumulated other comprehensive income, net of income taxes, as of December 31, 2007, to
the extent those hedges are effective; ineffectiveness of $9.6 million arising from January 1
to December 31, 2007 has been recognized as an increase through net income. The future income
tax liability associated with these instruments was $50.3 million. Net realized and
unrealized gains recognized in net income on physical gas purchase contracts and options not
qualifying for hedge accounting arising from January 1 to December 31, 2007 were
insignificant; no amounts were
 recorded in net income during 2006. Hedge ineffectiveness existing on derivative instruments as of
January 1, 2007 was recorded as a cumulative effect adjustment to opening retained earnings, net
of income tax, resulting in an increase in retained earnings of $0.2 million and a decrease in
accumulated other comprehensive income of $0.2 million.
    
    Bond issue costs were reclassified from other assets to long-term debt and deferred swap
gains were reclassified from other non-current liabilities to long-term debt, resulting in a
reduction in other assets of $23.9 million, a reduction in other non-current liabilities of
$6.6 million and a reduction in long-term debt of $17.3 million at January 1, 2007. These
costs are amortized using the effective interest rate method, and will continue to be
amortized over the term of the related liability. As of December 31, 2007, unamortized bond
issue costs reduced long-term debt by $24.6 million while unamortized deferred swap gains
increased it by $5.3 million.




---



##### 



L I Q U I D I T Y  &  C A P I T A L   R E S O U R C E S
    
    53
  
 LIQUIDITY
AND CAPITAL RESOURCES




---



##### 



54

    L I Q U I D I T Y   &   C A P I T A L   R E S O U R C E S
 CASH REQUIREMENTS
  Contractual
Obligations and Other CommitmentsPayments Due by Period 
Dollars (millions)Total
    
    Within 1 year
    
    1 to 3 years
    
    3 to 5 years
    
    Over 5 yearsLong-term debt obligations
    
    $
    1,358.5
    
    
    $
    0.2
    
    
    $
    2.1
    
    
    $
    606.2
    
    
    $
    750.0Estimated interest payments on 

long-term debt obligations
    
    
    1,134.4
    
    
    
    96.8
    
    
    
    193.7
    
    
    
    123.1
    
    
    
    720.8Operating leases
    
    
    657.2
    
    
    
    97.4
    
    
    
    168.8
    
    
    
    136.8
    
    
    
    254.2Purchase obligations
    
    
    914.2
    
    
    
    272.1
    
    
    
    221.0
    
    
    
    148.3
    
    
    
    272.8Other commitments
    
    
    88.3
    
    
    
    22.7
    
    
    
    38.2
    
    
    
    7.6
    
    
    
    19.8Other long-term liabilities
    
    
    1,263.7
    
    
    
    49.2
    
    
    
    78.4
    
    
    
    38.5
    
    
    
    1,097.6Total
    
    $
    5,416.3
    
    
    $
    538.4
    
    
    $
    702.2
    
    
    $
    1,060.5
    
    
    $
    3,115.2
 Long-Term
Debt Obligations
 Operating
Leases
  Purchase
Obligations




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##### 



L I Q U I D I T Y   &   C A P I T A L   R E S O U R C E S
    
    55
 Other Commitments
  Other
Long-Term Liabilities
   Capital Expenditures
  Investment Liquidity
 Investments
 Sources and Uses of Cash
   Dollars (millions) except percentage amounts% Increase (Decrease)2007
    
    
    
    2006
    
    
    
    2005
    
    
    
    2007
    
    
    
    2006Cash provided by operating activities
    
    $
    1,688.9
    
    
    $
    696.8
    
    
    $
    865.1
    
    
    
    142
    
    
    
    (19
    )Cash (used in) investing activities
    
    $
    (758.1
    )
    
    $
    (839.7
    )
    
    $
    (555.3
    )
    
    
    (10
    )
    
    
    51Cash (used in) provided by financing activities
    
    $
    (537.0
    )
    
    $
    374.7
    
    
    $
    (674.8
    )
    
    
    n/m
    
    
    
    n/mIncrease (decrease) in cash and cash equivalents
    
    $
    393.8
    
    
    $
    231.8
    
    
    $
    (365.0
    )
    
    
    70
    
    
    
    n/mn/m = not meaningfulDollars (millions) except ratio and percentage amountsDecember 31
    
    December 31
    
    December 31
    
    % Increase (Decrease)2007
    
    
    
    2006
    
    
    
    2005
    
    
    
    2007
    
    
    
    2006Current assets
    
    $
    1,811.3
    
    
    $
    1,310.2
    
    
    $
    1,110.8
    
    
    
    38
    
    
    
    18Current liabilities
    
    $
    (1,001.9
    )
    
    $
    (1,103.5
    )
    
    $
    (1,096.1
    )
    
    
    (9
    )
    
    
    1Working capital
    
    $
    809.4
    
    
    $
    206.7
    
    
    $
    14.7
    
    
    
    292
    
    
    

n/mCurrent ratio
    
    
    1.81
    
    
    
    1.19
    
    
    
    1.01
    
    
    
    52
    
    
    
    18n/m = not meaningful




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##### 



56


L I Q U I D I T Y   &   C A P I T A L   R E S O U R C E S
  
 
    
    During the first quarter of 2007, $9.7 million was paid to settle outstanding amounts
related to the December 2006 purchase of additional shares in SQM. During the third quarter
of 2007, we purchased an additional 1,011,062 shares of SQM for cash consideration of $16.8
million, which was financed by cash on hand. Our ownership interest in SQM remains at
approximately 32 percent. During 2006, we acquired additional interests in Sinofert, APC and
SQM for cash consideration of $352.5 million. The Sinofert purchase price was financed by
short-term debt; the purchase prices of APC and SQM were financed by cash on hand.
    
    Our spending on property, plant and equipment was $607.2 million in 2007, an increase of
$98.6 million over 2006. Approximately 56 percent (2006  58 percent) of our consolidated
capital expenditures related to the potash segment.
 
    
    We invested $132.5 million in investments in the form of auction rate securities during
2007.




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##### 



C
A P I T A L  S T R U C T U R
E  &  M A N A G E M E N T
    57
 CAPITAL STRUCTURE AND MANAGEMENT  Capital Structure
 December 31, 2007
    
    
    December 31, 2006Short-term debt obligations
    
    $
    90.0
    
    
    $
    157.9Current portion of long-term debt obligations
    
    
    0.2
    
    
    
    400.4Long-term debt obligations
    
    
    1,358.3
    
    
    
    1,357.1Deferred debt costs and swap gains included in long-term debt
    
    
    (18.9)
    
    
    
    Total debt
    
    
    1,429.6
    
    
    
    1,915.4Shareholders equity
    
    $
    6,018.7
    
    
    $
    2,780.3Total debt to capital
    
    
    19%
    
    
    
    41%Fixed rate debt obligations as a percentage of total debt obligations
    
    
    93%
    
    
    
    91%Common shares outstanding
    
    
    316,411,209
    
    
    
    314,403,147Stock options outstanding
    
    
    14,006,984
    
    
    
    14,305,644Dividend payout ratio
    
    
    10%
    
    
    
    10%
 Principal Debt Instruments
 Total
    
    
    Amount
    
    
    Amount
    
    
    AmountAmount
    
    
    Outstanding
    
    
    Committed
    
    
    AvailableSyndicated credit facility
    
    $
    750.0
    
    
    $
    
    
    
    $
    90.0
    
    
    $
    660.0Line of credit
    
    
    75.0
    
    
    
    
    
    
    
    23.9
    
    
    
    51.1Commercial paper
    
    
    750.0
    
    
    
    90.0
    
    
    
    
    
    
    
    660.0US shelf registrations
    
    
    4,000.0
    
    
    
    1,350.0
    
    
    
    
    
    
    
    2,250.0
    1
 1
    
    $400.0 million of senior notes issued under one of the companys US shelf registration
statements were repaid in full at maturity; no additional amount is available in respect of
the principal of these senior notes.
  We use a combination of short-term and long-term debt to finance our operations. We typically pay
floating rates of interest on our short-term debt and fixed rates on our long-term debt.We have a $750.0 million syndicated credit facility that provides for unsecured advances. The
credit facility was renewed in September 2005 for a five-year term, extended in September 2006 for
one additional year, and extended in October 2007 through May 31, 2013. The amount available to us
is the total facility amount less direct borrowings and amounts committed in respect of commercial
paper outstanding. No funds were borrowed under the facility as of December 31, 2007. The line of
credit was renewed in September 2007 for the period to May 2009; it will be renewable annually
beginning in May 2009. Outstanding letters of credit and direct borrowings reduce the amount
available. Both the line of credit and the syndicated credit facility have financial tests and
other covenants with which we must comply at each quarter-end. Principal covenants under the
credit facility and line of credit require a debt-to-capital ratio of less than or equal to
0.60:1, a long-term debt-to-EBITDA (defined in the respective agreements as earnings before
interest, income taxes, provincial mining and other taxes,
depreciation, amortization and other
  non-cash expenses, and unrealized gains and losses in respect of hedging
instruments) ratio of less than or equal to 3.5:1, tangible net worth greater than or equal to
$1,250.0 million and debt of subsidiaries not to exceed $650.0 million. The syndicated credit
facility and line of credit are also subject to other customary covenants and events of default,
including an event of default for non-payment of other debt in excess of Cdn $40.0 million.
Non-compliance with any of the above covenants could result in accelerated payment of the related
debt and amount due under the line of credit, and termination of the line of credit. We were in
compliance with all covenants as at December 31, 2007.The commercial paper market is a source of same day cash for the company. Access to this source
of short-term financing depends primarily on maintaining our R1 low credit rating by DBRS and
conditions in the money markets. The interest rates at which we issue long-term debt are partly
based on the quality of our credit ratings, which are all investment grade. Our credit rating, as
measured by Standard & Poors senior debt ratings and Moodys senior debt ratings, remained
unchanged from December 31, 2006 at BBB+ with a stable outlook and Baa1 with a stable outlook,
respectively.




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##### 



58

M
A R K E T  R I S K S  A S S O C I A T E
D       W I T H  F I N A N C I A L  I N S T R
U  M E N T S
  We also have US shelf registration statements, one of which was registered in 2007 for $2,000.0
million, under which we may issue up to an additional $2,250.0 million in unsecured debt
securities.For 2007, our weighted average cost
of capital was 10.0 percent (2006  8.8 percent), of which 96
percent represented equity (2006  86 percent).Outstanding Share DataWe had 316,411,209 common shares issued and outstanding at December 31, 2007, compared to
314,403,147 common shares issued and outstanding at December 31, 2006. The company issued
2,008,062 common shares pursuant to the exercise of stock options and under our dividend
reinvestment plan.During the second quarter, the 2007 Performance Option Plan was approved by our shareholders. It
permits the grant to eligible employees of options to purchase common shares of the company at an
exercise price that shall not be less than the quoted market closing price of the shares on the
day prior to the grant. In general, options will vest, if at all, according to a schedule based on
the three-year average excess of the companys consolidated cash flow return on investment over
the weighted average cost of capital.At December 31, 2007, there were 14,006,984 options to purchase common shares outstanding under
the companys five stock option plans, as compared to 14,305,644 at December 31, 2006.Off-Balance Sheet ArrangementsIn the normal course of operations, PotashCorp engages in a variety of transactions that, under
Canadian GAAP, are either not recorded on our Consolidated Statements of Financial Position or are
recorded on our Consolidated Statements of Financial Position in amounts that differ from the full
contract amounts. Principal off-balance sheet activities we undertake include issuance of
guarantee contracts, certain derivative instruments and long-term fixed price contracts. We do not
reasonably expect any presently known trend or uncertainty to affect our ability to continue using
these arrangements. These types of arrangements are discussed below.Guarantee ContractsRefer to Note 30 to the consolidated financial statements for information pertaining to our
guarantees.Derivative InstrumentsWe use derivative financial instruments to manage exposure to commodity price, interest rate and
foreign exchange rate fluctuations. As a result of new accounting changes effective January 1,
2007,
  as described in Note 3 to the consolidated financial statements, regardless of whether the
derivatives are designated as hedges for Canadian GAAP purposes, they are recorded on the
Consolidated Statements of Financial Position at fair value and marked-to-market each reporting
period, except for certain non-financial derivatives that have qualified for and for which we have
documented a normal purchase or normal sale exception in accordance with the accounting standards.Long-Term Fixed Price ContractsCertain of our long-term raw materials agreements contain fixed price components. Our significant
agreements, and the related obligations under such agreements, are discussed in Cash Requirements
on Page 54.MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTSMarket risk is the potential for loss from adverse changes in the market value of financial
instruments. The level of market risk to which we are exposed varies depending on the composition
of our derivative instrument portfolio, as well as current and expected market conditions. The
following discussion provides additional detail regarding our exposure to the risks of changing
commodity prices, interest rates and foreign exchange rates. A discussion of enterprise-wide risk
management can be found on Pages 29 to 30. A discussion of certain liquidity and credit risk
related to our investments can be found under Liquidity and Capital Resources  Investment
Liquidity on Page 55.Commodity RiskOur natural gas purchase strategy is based on diversification for our total gas requirements
(which represent the forecast consumption of natural gas volumes by our manufacturing and mining
facilities). The objective is to acquire a reliable supply of natural gas feedstock and fuel on a
location-adjusted, cost-competitive basis in a manner that minimizes volatility without undue
risk.Our US nitrogen results are significantly affected by the price of natural gas. As discussed
above, we employ derivative commodity instruments related to a portion of our natural gas
requirements (primarily futures, swaps and options) for the purpose of managing our exposure to
commodity price risk in the purchase of natural gas, not for speculative or trading purposes.
Changes in the market value of these derivative instruments have a high correlation to changes in
the spot price of natural gas.




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R E L A T
E D  P A R T Y  T R A N S A C T I O N S


59
  A sensitivity analysis has been prepared to estimate our market risk exposure arising from
derivative commodity instruments. The fair value of such instruments is calculated by valuing each
position using quoted market prices where available or prices provided by other external sources.
Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10
percent adverse change in such prices. The results of this analysis indicate that as of December
31, 2007, our estimated derivative commodity instruments market risk exposure was $48.9 million
(2006  $30.5 million), based on our gas hedging contracts
fair-valued at $127.5 million (2006 
$120.3 million). Actual results may differ from this estimate. Changes in the fair value of such
derivative instruments, with maturities in 2008 through 2017, will generally relate to changes in
the spot price of natural gas purchases.Interest Rate RiskWe address interest rate risk by using a diversified portfolio of fixed and floating rate
instruments. This exposure is also managed by aligning current and long-term assets with demand and
fixed-term debt and by monitoring the effects of market changes in interest rates.As at December 31, 2007, our short-term debt (comprised of commercial paper) was $90.0 million, our
current portion of long-term debt obligation maturities was $0.2 million and our long-term portion
of debt obligation maturities was $1,358.3 million. Long-term debt obligation maturities, including
the current portion, are comprised primarily of $1,350.0 million of senior notes that were issued
under our US shelf registration statements. Since most of our outstanding borrowings have fixed
interest rates, the primary market risk exposure is to changes in fair value. It is estimated that,
all else constant, a hypothetical 10 percent change in interest rates would not materially impact
our results of operations or financial position. If interest rates changed significantly,
management would take appropriate actions to manage our exposure to the change. However, due to the
uncertainty of the specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in our financial structure.We are also exposed to changes in
interest rates related to our investments in marketable
securities and auction rate securities. At December 31, 2007, our marketable securities in cash and
cash equivalents had a face value and fair value of $719.5 million, and auction rate securities had
a face value of $132.5 million and fair value of $56.0 million. Interest rates on marketable
securities are floating and therefore vary directly with the Canadian
and US market interest rates.
  Interest rates on auction rate securities are typically reset every 28 days
through the sale of the securities in a dutch auction process; however, in the event of market
illiquidity the interest rate is reset based on a spread to LIBOR. As a result of current negative
conditions in the global credit markets, auctions for the investments in these securities that are
held in the companys trading account have recently failed to settle on their respective settlement
dates and instead have paid interest based on the prescribed spread to LIBOR. As of December 31,
2007, our estimated interest rate risk exposure on our marketable securities was minimal due to the
short-term nature of the investments, as was the impact on auction rate securities since the
provisions of those agreements, in the current market situation, guarantee a fixed spread
regardless of where the market interest rates move. It is estimated that, all else constant, a
hypothetical 10 percent change in interest rates would not materially impact our results of
operations or financial position.Foreign Exchange RiskWe also enter into foreign currency forward contracts for the primary purpose of limiting exposure
to exchange rate fluctuations relating to Canadian dollar operating and capital expenditures and
capital expenditures denominated in currencies other than the US or Canadian dollar. These
contracts are not designated as hedging instruments for accounting purposes. Gains or losses
resulting from foreign exchange contracts are recognized in earnings in the period in which changes
in fair value occur.As at December 31, 2007, we had entered into foreign currency forward contracts to sell US dollars
and receive Canadian dollars in the notional amount of $60.0 million (2006  $100.0 million) at an
average exchange rate of 1.0176 (2006  1.1478) per US dollar and to sell US dollars and receive
Hong Kong dollars in the notional amount of $174.5 million (2006
 $NIL) at an average exchange
rate of 7.7937 (2006  NIL) per US dollar. The company had also entered into other small forward
contracts. Maturity dates for all forward contracts are within 2008 and 2009.RELATED PARTY TRANSACTIONSThe company sells potash from our Saskatchewan mines for use outside of North America exclusively
to Canpotex Sales for the year ended December 31, 2007 were $782.7 million (2006  $467.1 million;
2005  $577.1 million). Sales to Canpotex are at prevailing market prices and are settled on
normal trade terms.




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60

    C R I T I C A L  A C C O U N T I N G  E S T I M A
T E S
  CRITICAL ACCOUNTING ESTIMATESOur discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with Canadian GAAP. These
principles differ in certain significant respects from US GAAP, and these differences are described
and quantified in Note 33 to the consolidated financial statements.Our significant accounting policies are contained in Note 2 to the consolidated financial
statements. Certain of these policies involve critical accounting estimates because they require us
to make particularly subjective or complex
judgments about matters that are inherently uncertain and because of the likelihood that materially
different amounts could be reported under different conditions or using different assumptions. We
have discussed the development, selection and application of our key accounting policies, and the
critical accounting estimates and assumptions they involve, with the audit committee of the Board
of Directors, and it has reviewed the disclosures described in this section.The following section discusses the critical accounting estimates and assumptions that management
has made and how they affect the amounts reported in the consolidated financial statements. We
consider these estimates to be an important part of understanding our financial statements.Variable Interest EntitiesIn the normal course of business, we may enter into arrangements that need to be examined to
determine whether they fall under the variable interest entity (VIE) accounting guidance.
Management needs to exercise significant judgment to determine if entities are VIEs and, if so,
whether such VIE relationships are required to be consolidated. This process involves first
understanding the arrangements to determine whether the entity is considered a VIE under the
accounting rules. We use a variety of complex estimation processes that may consider both
qualitative and quantitative factors, and may involve the use of assumptions about the business
environment in which an entity operates and analysis and calculation of its expected losses and its
expected residual returns, where necessary. These quantitative processes involve estimating the
future cash flows and performance of the entity, analyzing the variability in those cash flows and
allocating the losses and returns among the identified parties holding variable interests. Where an
entity is determined to be a VIE, our interests are compared to those of the unrelated outside
parties to identify the party that is the primary beneficiary, and thus should consolidate the
entity. In addition to the areas
  of judgment mentioned above, there is a significant amount of judgment
exercised in interpreting the provisions of the accounting guidance and applying them to our
specific transactions.Pension and Other Post-Retirement CostsWe sponsor plans that provide pensions and other post-retirement benefits for most of our
employees. We believe the accounting estimates related to our employee benefit plan costs are
critical accounting estimates because: (1) the amounts are based on complex actuarial calculations
using several assumptions; and (2) given the magnitude of our estimated costs, differences in
actual results or changes in assumptions could materially affect our consolidated financial
statements.Due to the long-term nature of these plans, the calculation of expenses and obligations depends on
various assumptions such as discount rates, expected
rates of return on assets, health-care cost trend rates, projected salary increases, retirement
age, mortality and termination rates. These assumptions are determined by management and are
reviewed annually by our actuaries. The discount rate reflects the weighted average interest rate
at which the pension and other post-retirement liabilities could be effectively settled using
high-quality bonds at the measurement date. The rate varies by country. We determine the discount
rate using a yield curve approach. Based on the respective plans demographics, expected future
pension benefit and medical claims payments are measured and discounted to determine the present
value of the expected future cash flows. The cash flows are discounted using yields on high-quality
AA-rated non-callable bonds with cash flows of similar timing. The expected rate of return on plan
assets assumption is based on expected returns for the various asset classes. Other assumptions are
based on actual experience and our best estimates. Actual results that differ from the assumptions
are accumulated and amortized over future periods and, therefore, generally affect recognized
expense and the recorded obligation in future periods. We have included a table in Note 15 to the
consolidated financial statements that quantifies the impact of these differences in each of the
last three years. These differences relate primarily to: (1) actual versus expected return on plan
assets; (2) actual actuarial gains/losses incurred on the benefit obligation versus those expected
and recognized in the consolidated financial statements; and (3) actual past service costs incurred
as a result of plan amendments versus those expected and recognized in the consolidated financial
statements.




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C R I T I C A L  A C C O U N T I N G  E S T I M A T E
S

    61
  The following table provides the sensitivity of benefit obligations and expense for our major plans
to changes in the discount rate, expected long-term return on plan assets, rate of compensation
increase and medical trend rate assumptions. A lower discount rate results in a higher benefit
obligation and a lower funded status. Similarly, poor fund performance results in a lower fair
value of plan assets and a lower funded status. In either situation, we may have to increase cash
contributions to the benefit plans. The sensitivity analysis should be used with caution as the
changes are hypothetical and the impact of changes in each key assumption may not be linear. For
further details on our annual expense and obligation, see Note 15 to the consolidated financial
statements.
  Impact of a 0.5% Change in Key Assumptions
  Pension Plans
    
    
    Other PlansObligation
    
    
    Expense
    
    
    Obligation
    
    
    ExpenseDiscount rateDecrease in assumption

    $
    42.5
    
    
    $
    4.0
    
    
    $
    19.5
    
    
    $
    2.2Increase in assumption
    
    
    (38.3
    )
    
    
    (3.6
    )
    
    
    (18.3
    )
    
    
    (2.1
    )Expected long-term rate of returnDecrease in assumption
    
    
    n/a
    
    
    
    3.2
    
    
    
    n/a
    
    
    
    n/aIncrease in assumption
    
    
    n/a
    
    
    
    (3.2
    )
    
    
    n/a
    
    
    
    n/aRate of compensation increaseDecrease in assumption
    
    
    (6.9
    )
    
    
    (1.4
    )
    
    
    (0.2
    )
    
    
    Increase in assumption
    
    
    7.0
    
    
    
    1.5
    
    
    
    0.2
    
    
    
    Medical trend rateDecrease in assumption
    
    
    n/a
    
    
    
    n/a
    
    
    
    (15.2
    )
    
    
    (2.8
    )Increase in assumption
    
    
    n/a
    
    
    
    n/a
    
    
    
    17.7
    
    
    
    3.3
 Asset Retirement Obligations and Other Environmental CostsWe have significant liabilities relating to asset retirement obligations and other environmental
matters. The major categories of our asset retirement obligations include reclamation and
restoration costs at our potash and, most particularly, phosphate mining operations. Other
environmental liabilities typically relate to regulatory compliance, environmental management
associated with ongoing operations other than mining, and site assessment and remediation of
contamination related to the activities of the company and our
predecessors.We believe the accounting estimates related to asset retirement obligations and other environmental
costs are critical accounting estimates because: (1) we will not
incur most of these costs for a number of years,
  requiring us to make estimates over a long period; (2) environmental laws and
regulations and interpretations by regulatory authorities could change or circumstances affecting
our operations could change, either of which could result in significant changes to our current
plans; and (3) given the magnitude of our estimated costs, changes in any or all of these estimates
could have a material impact on our consolidated financial statements.Accruals for asset retirement obligations and other environmental matters totaled $134.7 million at
December 31, 2007 (2006  $119.3 million). In arriving at this amount, we considered the nature,
extent and timing of current and proposed reclamation and closure techniques in view of present
environmental laws and regulations. It is reasonably possible that the ultimate costs could change
in the future and that changes to these estimates could have a material effect on our consolidated
financial statements.Fair ValueWe have significant financial instruments recorded at fair value on the balance sheet. Financial
assets classified as held-for-trading are recorded at fair value with realized and unrealized gains
and losses reported in net income. Financial assets classified as available-for-sale or as hedging
derivatives are recorded at fair value with unrealized gains and losses reported in accumulated
other comprehensive income unless any unrealized losses are considered other-than-
temporary, in which case they are recognized in net income, and to the extent that the hedging
derivatives are considered effective. Financial liabilities classified as held-for-trading are
recorded at fair value with realized and unrealized gains and losses
reported in net income.We have classified investments in ICL, Sinofert and auction rate securities as available-for sale;
physical natural gas purchase contracts, natural gas options and foreign exchange and other forward
contracts as held-for-trading; and natural gas futures and swaps as hedging derivatives. All of
these are therefore recorded on the balance sheet at fair value. Fair value represents
point-in-time estimates that may change in subsequent reporting periods due to market conditions or
other factors. Estimated fair values are designed to approximate amounts at which the financial
instruments could be exchanged in a current transaction between willing parties. Multiple methods
exist by which fair value can be determined that can cause values (or a range of reasonable values)
to differ. There is no universal model that can be broadly applied to all items being valued.
Further, assumptions underlying the valuations may require estimation of costs/prices over time,
discount rates, inflation rates and other relevant variables.




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62

    C R I T I C A L     A C C O U N T I N G  E S T I M A T E
S
  There is currently no active market for the auction rate securities in our trading account and
therefore fair value is based on valuation techniques that reflect our own expectations about the
assumptions that market participants would use in pricing the asset in a current transaction
(including information obtained on transactions in the marketplace for other investments that may
be considered similar, information on expected cash flows based on our position of priority within
the tranches, information on expected cash flows based on information available regarding the
underlying securities, and assumptions about risk) as of the balance sheet date. Fair value for our
investments in Sinofert and ICL is based on the closing bid price as of the balance sheet date.
Futures contracts are exchange-traded and fair value is determined based on exchange prices. Other
forward contracts are based on underlyings that are exchange-traded and therefore fair value is
determined based on these prices. Swaps and option agreements are traded in the over-the-counter
market and fair value is calculated based on models and other valuation techniques that include
prices sourced from observable data.Fair values are also used in the assessment of asset impairment, as discussed further below.Income TaxesWe operate in a specialized industry and in several tax jurisdictions. As a result, our income is
subject to various rates of taxation. The breadth of the companys operations and the global
complexity of tax regulations require assessments of uncertainties and judgments in estimating the
taxes we will ultimately pay. The final taxes paid are dependent upon many factors, including
negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and
resolution of disputes arising from federal, provincial, state and local tax audits. The resolution
of these uncertainties and the associated final taxes may result in adjustments to our tax assets
and tax liabilities.We estimate future income taxes based upon temporary differences between the assets and liabilities
that we report in our consolidated financial statements and the tax basis of our assets and
liabilities as determined under applicable tax laws. We record a valuation allowance against our
future income tax assets when we believe, based on all available evidence, that it is not more
likely than not that all of our future income tax assets recognized will be realized prior to
their expiration. The amount of the future income tax asset recognized and considered realizable
could, however, be reduced if projected income is not achieved.
  Asset ImpairmentWe review long-lived assets and intangible assets with finite lives whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be fully recoverable.
Determination of recoverability is based on an estimate of undiscounted future cash flows, and
measurement of an impairment loss is based on the fair value of the assets. We believe that the
accounting estimate related to asset impairment is a critical accounting estimate because: (1) it
is highly susceptible to change from period to period as it requires management to make assumptions
about future sales, margins and market conditions over the long-term life of the assets; and (2)
the impact that recognizing an impairment would have on our financial position and results of
operations may be material. As at December 31, 2007, we determined that there were no triggering
events requiring impairment analysis.Goodwill is not amortized, but is assessed for impairment at the reporting unit level annually, or
sooner if events or changes in circumstances indicate that the carrying amount could exceed fair
value. Goodwill is assessed for impairment using a two-step approach, with the first step being to
assess whether the fair value of the reporting unit to which the goodwill is associated is less
than its carrying value. If this is the case, a second impairment test is performed that requires a
comparison of the fair value of goodwill to its carrying amount. If fair value is less than
carrying value, goodwill is considered impaired and an impairment charge must be recognized
immediately. The fair value of our reporting units is determined from internally developed
valuation models that consider various factors such as normalized and projected earnings, present
value of future cash flows and discount rates. In each of the last two years, we tested goodwill
for impairment, and in each year we determined that, based on our assumptions, the fair value of
our reporting units exceeded their carrying amounts and therefore we did not recognize impairment.Investments that are classified as available-for-sale, carried at cost or accounted for using the
equity method are also reviewed to determine whether fair value is below carrying value. Factors
and judgments we consider in determining whether a loss is temporary as compared to
other-than-temporary include the length of time and extent to which fair value has been below cost;
financial condition and near-term prospects of the investee; and our ability and intent to hold the
investment for a period of time sufficient to allow for any anticipated recovery. We determined the
fair value of the auction rate securities held in our trading account to be $56.0 million as of




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R
E C E N T   A C C O U N T I N G  C H A N G  E S
 & E F F E C T  I V E  D A T E S

    63
  December 31, 2007, representing an impairment of $76.5 million as compared to the par value of the
securities. Of the total impairment, $50.0 million has been
classified as temporary and $26.5 million has been classified as other-than-temporary. The
securities were reviewed on an individual basis to determine whether the impairment was temporary
or other-than-temporary. Two were identified as being other-than-temporarily impaired based on the
vintage of the underlying securities and complexity of the structures. The entire impairment on
these two securities was therefore classified as other-than-temporary. For those investments for
which the impairment in fair value is considered temporary, the company has the ability to hold the
securities until the temporary impairment in fair value is recovered, which may not be until a
recovery of the auction process or until maturity. However, the estimated fair value of the
investments in auction rate securities could decline in future periods based on market conditions,
which could result in additional impairment charges. None of our other investments were considered
impaired, either temporarily or other-than-temporarily, as of December 31, 2007.We cannot predict if an event that triggers impairment will occur, when it will occur or how it
will affect the asset amounts we have reported. Although we believe our estimates are reasonable
and consistent with current conditions, internal planning and expected future operations, such
estimates are subject to significant uncertainties and judgments. As a result, it is reasonably
possible that the amounts reported for asset impairments could be different if we were to use
different assumptions or if market and other conditions were to change. The changes could result in
non-cash charges that could materially affect our consolidated financial statements.Stock-Based CompensationWe account for stock-based compensation in accordance with the fair value recognition provisions of
Canadian GAAP. As such, stock-based compensation expense for equity-settled plans is measured at
the grant date based on the fair value of the award and is recognized as an expense over the
vesting period. Determining the fair value of such stock-based awards at the grant date requires
judgment, including estimating the expected term of stock options, the expected volatility of our
stock and expected dividends. In addition, judgment is required to estimate the number of
stock-based awards that are expected to be forfeited.
  For those awards with performance conditions that determine the number of options or units to which
our employees will be entitled, measurement of compensation cost is based on our best estimate of
the outcome of the performance conditions. If actual results differ significantly from these
estimates, stock-based compensation expense and our results of operations could be materially
impacted.Depreciation and AmortizationWe depreciate certain mining and milling assets and pre-stripping costs using the units of
production method based on the shorter of estimates of reserve or service lives. We have other
assets that we depreciate on a straight-line basis over their estimated useful lives.We perform assessments of our existing assets and depreciable lives in connection with the review
of mine operating plans. When we determine that assigned asset lives do not reflect the expected
remaining period of benefit, we make prospective changes to their depreciable lives. There are a
number of uncertainties inherent in estimating reserve quantities, particularly as they relate to
assumptions regarding future prices, the geology of our mines, the mining methods we use and the
related costs we incur to develop and mine our reserves. Changes in these assumptions could result
in material adjustments to our reserve estimates, which could result in changes to units of
production depreciation expense in future periods. Although some degree of variability is expected,
we believe the extent of our technical data and operating experience mitigates the potential for
significant changes in reserve estimates.As
discussed on Page 62, we review and evaluate our long-lived assets for impairment when events
or changes in circumstances indicate that the related carrying amounts may not be recoverable. We
believe it is unlikely that revisions to our estimates of reserves would give rise to an impairment
of our assets because of their significant size in relation to our asset-carrying values.RECENT ACCOUNTING CHANGES AND EFFECTIVE DATESRefer to Note 3 to the consolidated financial statements for information pertaining to accounting
changes effective in 2007, and Notes 2 and 33 to the consolidated financial statements for
information on issued accounting pronouncements that will be effective in future years.




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64


F
O R W A R D    L O O K I N G   S T A T E M  E N T
S
  FORWARD-LOOKING
STATEMENTSThis 2007 Financial Review, including the Key Earnings
Sensitivities and Outlook sections of Managements Discussion & Analysis of Financial Condition
and Results of Operations, contains forward-looking statements. These statements can be identified
by expressions of belief, expectation or intention, as well as those statements that are not
historical fact. These statements are based on certain factors and assumptions as set forth in this
2007 Financial Review, including foreign exchange rates, expected growth, results of operations,
performance, business prospects and opportunities and effective income tax rates. While the company
considers these factors and
assumptions to be reasonable based on information currently available, they may prove to be
incorrect. A number of factors could cause actual results to differ materially from those in the
forward-looking statements, including, but not limited to: fluctuations in supply and demand in
fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures,
including pricing pressures; the results of negotiations with China and India; timing and amount of
capital expenditures; risks associated
  with natural gas and other hedging activities; changes in capital markets and
corresponding effects on the companys investments; changes in currency and exchange rates;
unexpected geological or environmental conditions, including water inflow; strikes
or other forms of work stoppage or slowdowns; changes in, and the effects of, government policy
and regulations; and earnings, exchange rates and the decisions of
taxing authorities, all of which could affect our effective tax rates. Additional
risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2007
under the captions Forward-Looking Statements and
Item 1A  Risk Factors and in our filings
with the US Securities and Exchange Commission and the Canadian provincial securities commissions.
Forward-looking statements are given only as at the date of this report and the company disclaims
any obligation to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.




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11  Y E A R   R E P O R T


65
  FINANCIAL
DATA (in millions of US dollars except
share, per-share and percentage amounts)
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    19971Sales

Potash
    
    
    1,797.2
    
    
    
    1,227.5
    
    
    
    1,341.1
    
    
    
    1,056.1
    
    
    
    758.7
    
    
    
    669.0
    
    
    
    655.2
    
    
    
    710.3
    
    
    
    688.6
    
    
    
    663.3
    
    
    
    644.0Nitrogen
    
    
    1,799.9
    
    
    
    1,284.1
    
    
    
    1,368.8
    
    
    
    1,210.4
    
    
    
    1,156.4
    
    
    
    841.4
    
    
    
    993.5
    
    
    
    964.5
    
    
    
    744.7
    
    
    
    844.2
    
    
    
    939.3Phosphate
    
    
    1,637.1
    
    
    
    1,255.1
    
    
    
    1,137.3
    
    
    
    977.9
    
    
    
    883.9
    
    
    
    714.0
    
    
    
    732.1
    
    
    
    868.1
    
    
    
    922.3
    
    
    
    1,099.5
    
    
    
    1,036.7Total sales
    
    
    5,234.2
    
    
    
    3,766.7
    
    
    
    3,847.2
    
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.05-year CAGR
2
    
    
    18.7%10-year CAGR
2
    
    
    7.2%Gross margin 

Potash
    
    
    912.3
    
    
    
    561.1
    
    
    
    707.4
    
    
    
    422.8
    
    
    
    203.7
    
    
    
    218.0
    
    
    
    248.1
    
    
    
    307.4
    
    
    
    304.2
    
    
    
    319.2
    
    
    
    261.4Nitrogen
    
    
    536.1
    
    
    
    315.6
    
    
    
    318.7
    
    
    
    242.8
    
    
    
    193.2
    
    
    
    47.4
    
    
    
    94.7
    
    
    
    104.7
    
    
    
    (21.4
    )
    
    
    64.8
    
    
    
    133.0Phosphate
    
    
    432.8
    
    
    
    125.3
    
    
    
    98.9
    
    
    
    15.8
    
    
    
    (16.5
    )
    
    
    41.9
    
    
    
    64.5
    
    
    
    76.8
    
    
    
    130.5
    
    
    
    230.1
    
    
    
    196.6Total gross margin
    
    
    1,881.2
    
    
    
    1,002.0
    
    
    
    1,125.0
    
    
    
    681.4
    
    
    
    380.4
    
    
    
    307.3
    
    
    
    407.3
    
    
    
    488.9
    
    
    
    413.3
    
    
    
    614.1
    
    
    
    591.05-year CAGR
2
    
    
    43.7%10-year CAGR
2
    
    
    12.3%Depreciation and
amortization 

Potash
    
    
    71.7
    
    
    
    58.3
    
    
    
    64.5
    
    
    
    66.4
    
    
    
    52.4
    
    
    
    46.3
    
    
    
    34.1
    
    
    
    40.9
    
    
    
    37.2
    
    
    
    36.2
    
    
    
    39.6Nitrogen
    
    
    88.2
    
    
    
    77.6
    
    
    
    72.0
    
    
    
    79.7
    
    
    
    86.4
    
    
    
    88.0
    
    
    
    72.8
    
    
    
    66.1
    
    
    
    83.5
    
    
    
    86.7
    
    
    
    69.0Phosphate
    
    
    121.1
    
    
    
    94.6
    
    
    
    95.6
    
    
    
    84.4
    
    
    
    78.9
    
    
    
    76.8
    
    
    
    72.0
    
    
    
    68.1
    
    
    
    61.8
    
    
    
    59.1
    
    
    
    55.1Other
    
    
    10.3
    
    
    
    11.9
    
    
    
    10.3
    
    
    
    9.5
    
    
    
    9.7
    
    
    
    8.0
    
    
    
    6.8
    
    
    
    11.9
    
    
    
    8.6
    
    
    
    8.9
    
    
    
    6.3Total depreciation
and amortization
    
    
    291.3
    
    
    
    242.4
    
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0Operating income
(loss)
    
    
    1,588.5
    
    
    
    875.5
    
    
    
    892.6
    
    
    
    514.3
    
    
    
    (55.6
    )
    
    
    166.9
    
    
    
    269.7
    
    
    
    326.8
    
    
    
    (353.0
    )
    
    
    442.3
    
    
    
    442.0Net income
(loss)*3
    
    
    1,103.6
    
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.15-year CAGR
2
    
    
    83.1%10-year CAGR
2
    
    
    14.0%Net income (loss)
per share  basic
4
    
    
    3.50
    
    
    
    2.03
    
    
    
    1.67
    
    
    
    0.92
    
    
    
    (0.40
    )
    
    
    0.17
    
    
    
    0.39
    
    
    
    0.63
    
    
    
    (1.27
    )
    
    
    0.80
    
    
    
    0.95Net income (loss)
per share 
diluted
4
    
    
    3.40
    
    
    
    1.98
    
    
    
    1.63
    
    
    
    0.90
    
    
    
    (0.40
    )
    
    
    0.17
    
    
    
    0.39
    
    
    
    0.63
    
    
    
    (1.27
    )
    
    
    0.80
    
    
    
    0.94Dividends per share
    
    
    0.35
    
    
    
    0.20
    
    
    
    0.20
    
    
    
    0.18
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.17Cash provided by
operating
activities
    
    
    1,688.9
    
    
    
    696.8
    
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8Working capital
    
    
    809.4
    
    
    
    206.7
    
    
    
    14.7
    
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7Total assets
    
    
    9,716.6
    
    
    
    6,217.0
    
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6Long-term debt
obligations
    
    
    1,358.3
    5
    
    
    1,357.1
    
    
    
    1,257.6
    
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0Shareholders equity
    
    
    6,018.7
    
    
    
    2,780.3
    
    
    
    2,132.5
    
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9Shares outstanding
at the end
of the year
(thousands)
4,6
    
    
    316,411
    
    
    
    314,403
    
    
    
    310,782
    
    
    
    331,893
    
    
    
    318,672
    
    
    
    312,468
    
    
    
    311,712
    
    
    
    311,046
    
    
    
    322,164
    
    
    
    325,464
    
    
    
    323,376
 OPERATING
DATA (thousands)
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    

19971Employees at
year-end (actual #)
    
    
    5,003
    
    
    
    4,871
    
    
    
    4,879
    
    
    
    4,906
    
    
    
    4,904
    
    
    
    5,199
    
    
    
    4,997
    
    
    
    5,338
    
    
    
    5,498
    
    
    
    5,744
    
    
    
    5,751Potash production
(KCl) tonnage
    
    
    9,159
    
    
    
    7,018
    
    
    
    8,816
    
    
    
    7,914
    
    
    
    7,094
    
    
    
    6,447
    
    
    
    6,128
    
    
    
    7,149
    
    
    
    6,388
    
    
    
    6,995
    
    
    
    6,483Nitrogen production
(N) tonnage
    
    
    2,986
    
    
    
    2,579
    
    
    
    2,600
    
    
    
    2,558
    
    
    
    2,619
    
    
    
    2,990
    
    
    
    3,032
    
    
    
    2,706
    
    
    
    3,138
    
    
    
    3,121
    
    
    
    2,349Phosphate
production
(P2O5)
tonnage
    
    
    2,164
    
    
    
    2,108
    
    
    
    2,097
    
    
    
    1,962
    
    
    
    1,861
    
    
    
    1,512
    
    
    
    1,573
    
    
    
    2,042
    
    
    
    2,124
    
    
    
    2,363
    
    
    
    2,282Potash sales 
manufactured KCl
tonnes
    
    
    9,400
    
    
    
    7,196
    
    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    6,912
    
    
    
    6,474
    
    
    
    6,283
    
    
    
    6,640Nitrogen
sales 
manufactured
product tonnes
    
    
    5,731
    
    
    
    4,675
    
    
    
    4,843
    
    
    
    4,734
    
    
    
    5,367
    
    
    
    5,911
    
    
    
    5,753
    
    
    
    5,864
    
    
    
    6,271
    
    
    
    6,032
    
    
    
    4,927Phosphate
sales 
manufactured
product tonnes
    
    
    4,151
    
    
    
    3,970
    
    
    
    3,860
    
    
    
    3,675
    
    
    
    3,560
    
    
    
    2,809
    
    
    
    2,987
    
    
    
    3,861
    
    
    
    4,002
    
    
    
    4,627
    
    
    
    4,434
 1
    
    Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March
6, 1997.2
    
    Compound annual growth rate expressed as a percentage.3
    
    There were no extraordinary items or discontinued operations in any of the accounting
periods.4
    
    All share and per-share data have been retroactively restated to reflect the stock
dividend of two common shares for each share owned by shareholders of record at the close of
business on May 22, 2007. The stock dividend had the same effect as a three-for-one stock
split.5
    
    Represents long-term debt obligations and does not include unamortized costs. (See
Note 13 to the companys consolidated financial statements for description of such amounts.)6
    
    Common shares were repurchased in 2005, 2000 and 1999 in the
amounts of 28.500 million,
6.210 million and 1.890 million, respectively.
  Additional Information
 *
    
    The after-tax effects of asset impairment, plant shutdown, plant closure and office
consolidation charges and the gain on sale of long-term investments are included (as
applicable) in the data for 2007, 2006, 2004, 2003, 2000 and 1999 in the amounts of $18.6,
$4.5, $(30.8), $203.2, $1.5 and $547.1,
respectively.




---



##### 



66
    F I N A N C I A L  P E R F O R M A N C E  I N D I C A T O R S
   SUMMARY (in millions of US dollars except share, per-share and
tonnage amounts)
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997Net income (loss) 1
    
    
    1,103.6
    
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1Net income
(loss) share  diluted
    
    
    3.40
    
    
    
    1.98
    
    
    
    1.63
    
    
    
    0.90
    
    
    
    (0.40
    )
    
    
    0.17
    
    
    
    0.39
    
    
    
    0.63
    
    
    
    (1.27
    )
    
    
    0.80
    
    
    
    0.94EBITDA 2
    
    
    1,879.8
    
    
    
    1,117.9
    
    
    
    1,135.0
    
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.0Cash flow prior to
working capital changes 3
    
    
    1,525.3
    
    
    
    940.8
    
    
    
    860.3
    
    
    
    538.3
    
    
    
    368.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3Cash provided by operating activities
    
    
    1,688.9
    
    
    
    696.8
    
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8Return on assets
    
    
    11.4%
    
    
    
    10.2%
    
    
    
    10.1%
    
    
    
    5.8%
    
    
    
    (2.8%
    )
    
    
    1.1%
    
    
    
    2.6%
    
    
    
    4.8%
    
    
    
    (10.5%
    )
    
    
    5.8%
    
    
    
    6.7%Cash flow return 4
    
    
    20.4%
    
    
    
    14.5%
    
    
    
    14.7%
    
    
    
    11.1%
    
    
    
    2.9%
    
    
    
    6.3%
    
    
    
    8.5%
    
    
    
    10.5%
    
    
    
    (3.7%
    )
    
    
    12.6%
    
    
    
    13.0%Weighted average cost of capital
    
    
    10.0%
    
    
    
    8.8%
    
    
    
    8.3%
    
    
    
    8.4%
    
    
    
    7.3%
    
    
    
    7.3%
    
    
    
    7.7%
    
    
    
    8.7%
    
    
    
    8.7%
    
    
    
    8.3%
    
    
    
    8.8%Total shareholder return
    
    
    201.6%
    
    
    
    79.6%
    
    
    
    (2.7%
    )
    
    
    93.4%
    
    
    
    37.5%
    
    
    
    5.2%
    
    
    
    (20.4%
    )
    
    
    64.6%
    
    
    
    (23.0%
    )
    
    
    (21.9%
    )
    
    
    (1.1%
    )Total debt to capital
    
    
    19.2%
    
    
    
    40.8%
    
    
    
    41.5%
    
    
    
    36.4%
    
    
    
    42.3%
    
    
    
    41.7%
    
    
    
    42.1%
    
    
    
    31.1%
    
    
    
    31.9%
    
    
    
    29.5%
    
    
    
    35.7%Net debt to capital 5
    
    
    10.6%
    
    
    
    36.4%
    
    
    
    39.9%
    
    
    
    27.5%
    
    
    
    42.2%
    
    
    
    41.3%
    
    
    
    41.3%
    
    
    
    28.7%
    
    
    
    30.8%
    
    
    
    28.1%
    
    
    
    35.5%
 RECONCILIATIONS
AND CALCULATIONS (in millions of US dollars
except share, per-share and tonnage amounts)
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997Net income (loss) 1
    
    
    1,103.6
    
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1Income taxes
    
    
    416.2
    
    
    
    158.1
    
    
    
    267.4
    
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1Interest expense
    
    
    68.7
    
    
    
    85.6
    
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8Depreciation and amortization
    
    
    291.3
    
    
    
    242.4
    
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0EBITDA 2
    
    
    1,879.8
    
    
    
    1,117.9
    
    
    
    1,135.0
    
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.05-year CAGR 7
    
    
    37.2%10-year CAGR 7
    
    
    11.9%Cash flow prior to
working capital changes 3
    
    
    1,525.3
    
    
    
    940.8
    
    
    
    860.3
    
    
    
    538.3
    
    
    
    368.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3Accounts receivable
    
    
    (154.6
    )
    
    
    11.0
    
    
    
    (107.6
    )
    
    
    (51.9
    )
    
    
    (39.5
    )
    
    
    (11.1
    )
    
    
    69.9
    
    
    
    (52.2
    )
    
    
    33.8
    
    
    
    48.8
    
    
    
    23.5Inventories
    
    
    60.3
    
    
    
    13.9
    
    
    
    (119.9
    )
    
    
    (10.5
    )
    
    
    11.8
    
    
    
    (18.2
    )
    
    
    (76.1
    )
    
    
    (27.4
    )
    
    
    (16.1
    )
    
    
    (7.9
    )
    
    
    19.9Prepaid expenses and other
current assets
    
    
    7.0
    
    
    
    0.2
    
    
    
    (5.8
    )
    
    
    (6.3
    )
    
    
    11.4
    
    
    
    (3.9
    )
    
    
    2.3
    
    
    
    (3.1
    )
    
    
    3.2
    
    
    
    (16.6
    )
    
    
    3.7Accounts payable and accrued charges
    
    
    250.9
    
    
    
    (269.1
    )
    
    
    238.1
    
    
    
    188.7
    
    
    
    33.3
    
    
    
    60.4
    
    
    
    (266.2
    )
    
    
    158.0
    
    
    
    3.1
    
    
    
    (2.5
    )
    
    
    (68.6
    )Changes in non-cash operating
working capital
    
    
    163.6
    
    
    
    (244.0
    )
    
    
    4.8
    
    
    
    120.0
    
    
    
    17.0
    
    
    
    27.2
    
    
    
    (270.1
    )
    
    
    75.3
    
    
    
    24.0
    
    
    
    21.8
    
    
    
    (21.5
    )Cash provided by operating activities
    
    
    1,688.9
    
    
    
    696.8
    
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8Net income (loss)
    
    
    1,103.6
    
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1Total assets
    
    
    9,716.6
    
    
    
    6,217.0
    
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6Return on assets
    
    
    11.4%
    
    
    
    10.2%
    
    
    
    10.1%
    
    
    
    5.8%
    
    
    
    (2.8%
    )
    
    
    1.1%
    
    
    
    2.6%
    
    
    
    4.8%
    
    
    
    (10.5%
    )
    
    
    5.8%
    
    
    
    6.7%Net income (loss)
    
    
    1,103.6
    
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1Income taxes
    
    
    416.2
    
    
    
    158.1
    
    
    
    267.4
    
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1Interest expense
    
    
    68.7
    
    
    
    85.6
    
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8Current income taxes
    
    
    (296.6
    )
    
    
    (108.1
    )
    
    
    (227.3
    )
    
    
    (105.4
    )
    
    
    
    
    
    
    (24.2
    )
    
    
    (20.5
    )
    
    
    (32.6
    )
    
    
    (14.7
    )
    
    
    (19.4
    )
    
    
    (34.6
    )Depreciation and amortization
    
    
    291.3
    
    
    
    242.4
    
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0Cash flow 4
    
    
    1,583.2
    
    
    
    1,009.8
    
    
    
    907.7
    
    
    
    648.9
    
    
    
    171.8
    
    
    
    361.8
    
    
    
    434.9
    
    
    
    481.2
    
    
    
    (176.6
    )
    
    
    613.8
    
    
    
    577.4Total assets
    
    
    9,716.6
    
    
    
    6,217.0
    
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6Cash and cash equivalents
    
    
    (719.5
    )
    
    
    (325.7
    )
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )Fair value
of natural gas hedging derivative assets
    
    
    (127.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated depreciation of
property, plant and equipment
    
    
    2,280.7
    
    
    
    2,073.8
    
    
    
    1,927.7
    
    
    
    1,754.9
    
    
    
    1,576.2
    
    
    
    1,454.7
    
    
    
    1,274.3
    
    
    
    1,111.8
    
    
    
    951.0
    
    
    
    812.4
    
    
    
    662.0Net
unrealized gains on available-for-sale securities
    
    
    (2,284.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated amortization of
other assets and intangible assets
    
    
    47.0
    
    
    
    72.6
    
    
    
    66.4
    
    
    
    65.1
    
    
    
    70.1
    
    
    
    59.1
    
    
    
    42.0
    
    
    
    38.0
    
    
    
    42.0
    
    
    
    49.2
    
    
    
    17.7Accumulated amortization of goodwill
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    4.3
    
    
    
    1.4
    
    
    
    27.4
    
    
    
    12.7Accounts payable and accrued charges
    
    
    (911.7
    )
    
    
    (545.2
    )
    
    
    (842.7
    )
    
    
    (599.9
    )
    
    
    (380.3
    )
    
    
    (347.0
    )
    
    
    (271.4
    )
    
    
    (525.9
    )
    
    
    (349.1
    )
    
    
    (349.7
    )
    
    
    (348.1
    )Adjusted assets
    
    
    8,008.7
    
    
    
    7,499.8
    
    
    
    6,422.7
    
    
    
    5,895.3
    
    
    
    5,835.9
    
    
    
    5,835.2
    
    
    
    5,604.2
    
    
    
    4,673.9
    
    
    
    4,518.1
    
    
    
    5,005.6
    
    
    
    4,763.1Average adjusted assets
    
    
    7,754.3
    
    
    
    6,961.3
    
    
    
    6,159.0
    
    
    
    5,865.6
    
    
    
    5,835.6
    
    
    
    5,719.7
    
    
    
    5,139.1
    
    
    
    4,596.0
    
    
    
    4,761.9
    
    
    
    4,884.4
    
    
    
    4,447.0Cash flow return 4
    
    
    20.4%
    
    
    
    14.5%
    
    
    
    14.7%
    
    
    
    11.1%
    
    
    
    2.9%
    
    
    
    6.3%
    
    
    
    8.5%
    
    
    
    10.5%
    
    
    
    (3.7%
    )
    
    
    12.6%
    
    
    
    13.0%See footnotes on Page 68.




---



##### 



F I N A N C I A L  P E R F O R M A N C E  I N D I CAT O R S

    67
   RECONCILIATIONS AND CALCULATIONS continued (in millions of US dollars except share, per-share and
tonnage amounts)
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997Weighted average cost of capital
    
    
    10.0%
    
    
    
    8.8%
    
    
    
    8.3%
    
    
    
    8.4%
    
    
    
    7.3%
    
    
    
    7.3%
    
    
    
    7.7%
    
    
    
    8.7%
    
    
    
    8.7%
    
    
    
    8.3%
    
    
    
    8.8%End of year closing price (dollars)
    
    
    143.96
    
    
    
    47.83
    
    
    
    26.74
    
    
    
    27.69
    
    
    
    14.41
    
    
    
    10.60
    
    
    
    10.23
    
    
    
    13.05
    
    
    
    8.03
    
    
    
    10.65
    
    
    
    13.83Beginning of year opening price (dollars)
    
    
    47.83
    
    
    
    26.74
    
    
    
    27.69
    
    
    
    14.41
    
    
    
    10.60
    
    
    
    10.23
    
    
    
    13.05
    
    
    
    8.03
    
    
    
    10.65
    
    
    
    13.83
    
    
    
    14.17Change in share price (dollars)
    
    
    96.13
    
    
    
    21.09
    
    
    
    (0.95
    )
    
    
    13.28
    
    
    
    3.81
    
    
    
    0.37
    
    
    
    (2.82
    )
    
    
    5.02
    
    
    
    (2.62
    )
    
    
    (3.18
    )
    
    
    (0.34
    )Dividends
paid per share (dollars)
    
    
    0.30
    
    
    
    0.20
    
    
    
    0.20
    
    
    
    0.18
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.17Total shareholder return
    
    
    201.6%
    
    
    
    79.6%
    
    
    
    (2.7%
    )
    
    
    93.4%
    
    
    
    37.5%
    
    
    
    5.3%
    
    
    
    (20.3%
    )
    
    
    64.6%
    
    
    
    (23.0%
    )
    
    
    (21.8%
    )
    
    
    (1.2%
    )Short-term debt
    
    
    90.0
    
    
    
    157.9
    
    
    
    252.2
    
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9Current portion of long-term debt
    
    
    0.2
    
    
    
    400.4
    
    
    
    1.2
    
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7Long-term debt
    
    
    1,339.4
    
    
    
    1,357.1
    
    
    
    1,257.6
    
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0Total debt
    
    
    1,429.6
    
    
    
    1,915.4
    
    
    
    1,511.0
    
    
    
    1,362.4
    
    
    
    1,446.1
    
    
    
    1,496.3
    
    
    
    1,514.8
    
    
    
    908.2
    
    
    
    918.9
    
    
    
    1,028.6
    
    
    
    1,234.6Cash and cash equivalents
    
    
    (719.5
    )
    
    
    (325.7
    )
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )Net debt 5
    
    
    710.1
    
    
    
    1,589.7
    
    
    
    1,417.1
    
    
    
    903.5
    
    
    
    1,441.4
    
    
    
    1,471.8
    
    
    
    1,469.5
    
    
    
    808.2
    
    
    
    874.9
    
    
    
    960.6
    
    
    
    1,225.8Shareholders equity
    
    
    6,018.7
    
    
    
    2,780.3
    
    
    
    2,132.5
    
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9Total debt to capital
    
    
    19.2%
    
    
    
    40.8%
    
    
    
    41.5%
    
    
    
    36.4%
    
    
    
    42.3%
    
    
    
    41.7%
    
    
    
    42.1%
    
    
    
    31.1%
    
    
    
    31.9%
    
    
    
    29.5%
    
    
    
    35.7%Net debt to capital 5
    
    
    10.6%
    
    
    
    36.4%
    
    
    
    39.9%
    
    
    
    27.5%
    
    
    
    42.2%
    
    
    
    41.3%
    
    
    
    41.3%
    
    
    
    28.7%
    
    
    
    30.8%
    
    
    
    28.1%
    
    
    
    35.5%Current assets
    
    
    1,811.3
    
    
    
    1,310.2
    
    
    
    1,110.8
    
    
    
    1,243.6
    
    
    
    733.9
    
    
    
    832.0
    
    
    
    819.6
    
    
    
    871.7
    
    
    
    726.2
    
    
    
    774.2
    
    
    
    734.5Current liabilities
    
    
    (1,001.9
    )
    
    
    (1,103.5
    )
    
    
    (1,096.1
    )
    
    
    (703.7
    )
    
    
    (557.8
    )
    
    
    (823.4
    )
    
    
    (772.5
    )
    
    
    (1,020.4
    )
    
    
    (831.0
    )
    
    
    (445.0
    )
    
    
    (452.8
    )Working capital
    
    
    809.4
    
    
    
    206.7
    
    
    
    14.7
    
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7Cash and cash equivalents
    
    
    (719.5
    )
    
    
    (325.7
    )
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )Short-term debt
    
    
    90.0
    
    
    
    157.9
    
    
    
    252.2
    
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9Current portion of long-term debt
    
    
    0.2
    
    
    
    400.4
    
    
    
    1.2
    
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7Non-cash operating working capital
    
    
    180.1
    
    
    
    439.3
    
    
    
    174.2
    
    
    
    184.8
    
    
    
    348.9
    
    
    
    460.5
    
    
    
    502.9
    
    
    
    245.8
    
    
    
    333.1
    
    
    
    356.5
    
    
    
    377.5Sales
    
    
    5,234.2
    
    
    
    3,766.7
    
    
    
    3,847.2
    
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.0Freight
    
    
    346.1
    
    
    
    255.8
    
    
    
    249.7
    
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2
    
    
    
    216.7
    
    
    
    222.1
    
    
    
    212.5
    
    
    
    216.5
    
    
    
    226.6Transportation and distribution
    
    
    124.1
    
    
    
    134.1
    
    
    
    121.9
    
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5
    
    
    
    83.3
    
    
    
    83.1
    
    
    
    77.0
    
    
    
    77.9
    
    
    
    61.7Net sales 6
    
    
    4,764.0
    
    
    
    3,376.8
    
    
    
    3,475.6
    
    
    
    2,901.4
    
    
    
    2,465.8
    
    
    
    1,928.7
    
    
    
    2,080.8
    
    
    
    2,237.7
    
    
    
    2,066.1
    
    
    
    2,312.6
    
    
    
    2,331.7Potash net salesNorth American
    
    
    656.9
    
    
    
    470.5
    
    
    
    495.6
    
    
    
    347.5
    
    
    
    230.6
    
    
    
    215.3
    
    
    
    232.1
    
    
    
    237.8
    
    
    
    237.4
    
    
    
    227.6
    
    
    
    210.2Offshore
    
    
    909.6
    
    
    
    576.0
    
    
    
    668.3
    
    
    
    504.6
    
    
    
    336.2
    
    
    
    300.7
    
    
    
    293.4
    
    
    
    340.9
    
    
    
    325.9
    
    
    
    317.9
    
    
    
    294.0Miscellaneous and
purchased product
    
    
    13.5
    
    
    
    11.7
    
    
    
    13.0
    
    
    
    42.7
    
    
    
    52.3
    
    
    
    28.5
    
    
    
    6.3
    
    
    
    3.4
    
    
    
    2.3
    
    
    
    2.9
    
    
    
    3.8Total
    
    
    1,580.0
    
    
    
    1,058.2
    
    
    
    1,176.9
    
    
    
    894.8
    
    
    
    619.1
    
    
    
    544.5
    
    
    
    531.8
    
    
    
    582.1
    
    
    
    565.6
    
    
    
    548.4
    
    
    
    508.0Potash sales (thousands KCl tonnes)North American
    
    
    3,471
    
    
    
    2,785
    
    
    
    3,144
    
    
    
    3,246
    
    
    
    2,870
    
    
    
    2,780
    
    
    
    2,894
    
    
    
    2,939
    
    
    
    2,871
    
    
    
    2,702
    
    
    
    3,017Offshore
    
    
    5,929
    
    
    
    4,411
    
    
    
    5,020
    
    
    
    5,030
    
    
    
    4,213
    
    
    
    3,547
    
    
    
    3,349
    
    
    
    3,973
    
    
    
    3,603
    
    
    
    3,581
    
    
    
    3,623Total
    
    
    9,400
    
    
    
    7,196
    
    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    6,912
    
    
    
    6,474
    
    
    
    6,283
    
    
    
    6,640Weighted average shares outstandingBasic (thousands)
    
    
    315,641
    
    
    
    311,880
    
    
    
    325,704
    
    
    
    323,901
    
    
    
    313,380
    
    
    
    312,126
    
    
    
    311,274
    
    
    
    314,460
    
    
    
    325,380
    
    
    
    325,062
    
    
    
    313,650Diluted (thousands)
    
    
    324,308
    
    
    
    318,689
    
    
    
    333,234
    
    
    
    332,217
    
    
    
    313,380
    
    
    
    313,896
    
    
    
    313,116
    
    
    
    316,218
    
    
    
    325,380
    
    
    
    327,009
    
    
    
    316,926




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68


F
I N A N C I A L  P E R F O R M A N C E  I N D I C
A T O R S
  Non-GAAP Financial Measures and Footnotes to Reconciliations and Calculations
   1
    
    The after-tax effects of asset impairment, plant shutdown, plant closure and office
consolidation charges and the gain on sale of long-term investments are included (as
applicable) in the data for 2007, 2006, 2004, 2003, 2000 and 1999 in the amounts of $18.6,
$4.5, $(30.8), $203.2, $1.5 and $547.1, respectively.2
    
    PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures of its
operational performance. Management believes EBITDA and adjusted EBITDA to be important
measures as they exclude the effects of items which primarily reflect the impact of long-term
investment decisions, rather than the performance of the companys day-to-day operations. As
compared to net income (loss) according to GAAP, these measures are limited in that they do
not reflect the periodic costs of certain capitalized tangible and intangible assets used in
generating revenues in the companys business, or the non-cash charges associated with
impairments and shutdown-related costs, or gain on sale of long-term investments. Management
evaluates such items through other financial measures such as capital expenditures and cash
flow provided by operating activities. The company believes that these measurements are useful
to measure a companys ability to service debt and to meet other payment obligations or as a
valuation measurement.EBITDA has not been adjusted for the non-cash effects of asset impairment, plant shutdown, plant
closure and office consolidation charges, nor the gain on sale of long-term investments. The
non-cash effects of these items applicable to 2007, 2006, 2004, 2003, 2000 and 1999 were $26.5,
$6.3, $(30.8), $245.9, $(5.6) and $563.7, respectively. Considering the effects of these non-cash
items, adjusted EBITDA for 2007, 2006, 2004, 2003, 2000 and 1999 would have been $1,906.3,
$1,124.2, $723.5, $417.7, $508.2 and $401.8, respectively.3
    
    Cash flow prior to working capital changes is defined as the cash provided by operating
activities, exclusive of changes in non-cash operating working capital. PotashCorp uses cash
flow prior to working capital changes as a supplemental financial measure in its evaluation of
liquidity. Management believes that adjusting principally for the swings in non-cash working
capital items due to seasonality assists management in making long-term liquidity assessments.
The company also believes that this measurement is useful as a measure of liquidity or as a
valuation measurement.4
    
    PotashCorp uses cash flow and cash flow return as supplemental measures to evaluate the
performance of the companys assets in terms of the cash flow they have generated. Calculated
on the total cost basis of the companys assets rather than on the depreciated value, these
measures reflect cash returned on the total investment outlay. The company believes these
measures are one of the best predictors of shareholder value. As such, management believes
this information to be useful to investors.
 5
    
    Management believes that net debt and net-debt-to-capital ratio are useful to investors
because they are helpful in determining the companys leverage. It also believes that, since
the company has the ability to and may elect to use a
portion of cash and cash equivalents to retire debt or to incur additional expenditures without
increasing debt, it is appropriate to apply cash and cash equivalents to debt in calculating net
debt and net debt to capital. PotashCorp believes that this measurement is useful as a financial
leverage measure.6
    
    Management includes net sales in its segment disclosures in the consolidated financial
statements pursuant to Canadian GAAP, which requires segmentation based upon the companys
internal organization and reporting of revenue and profit measures derived from internal
accounting methods. Net sales (and related per-tonne amounts and other ratios) are primary
revenue measures it uses and reviews in making decisions about operating matters on a business
segment basis. These decisions include assessments about potash, nitrogen and phosphate
performance and the resources to be allocated to these segments. It also uses net sales (and
related per-tonne amounts and other ratios) for business segment planning and monthly
forecasting. Net sales are calculated as sales revenues less freight, transportation and
distribution expenses. Net sales presented on a consolidated basis rather than by business
segment is considered a non-GAAP financial measure.7
    
    Compound annual growth rate expressed as a percentage.
  FINANCIAL TERMS
 Adjusted EBITDA
 Average adjusted assets
 Cash flow
 Cash flow return
 Current income taxes
 Debt to capital
 EBITDA
 Market value of total capital
 Net debt to capital
 Return on assets
 Total shareholder return
 Weighted average cost of capital




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##### 



Learn
more in our online report:M
A N A G E M E N T  S  R E S P O N S I B I L I T Y
    KEYWORD: MGMT BIOS
    

69
 MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
 Managements Report on Financial Statements
       Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework
 -s- W. Doyle
    
    -s- W. BrownleeW. Doyle
    
    W. BrownleePresident and
    
    Executive Vice President andChief Executive Officer
    
    Chief Financial OfficerFebruary 15, 2008




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##### 



70
    A C C O U N T A N T S   R E P O R T S
 REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 To the Board of Directors and Shareholders of Potash Corporation of Saskatchewan Inc.
 Internal Control  Integrated Framework
    Internal Control
 Integrated Framework
  
 Independent Registered Chartered Accountants




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##### 



A C C O U N T A N T S   R E P O R T S
    
    71
 REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 To the Board of Directors and Shareholders of Potash Corporation of Saskatchewan Inc.
    Comprehensive Income Equity Financial
Instruments  Recognition and Measurement Hedges Stripping Costs Incurred in the Production Phase of a Mining Operation
 Internal Control  Integrated Framework
 
 Independent Registered Chartered Accountants




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72


C
O N S O L I D A T E D  F I N A N C I A L  S  T A
T  E  M E N T S
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 as at December 31
    
    in millions of US dollars except share amounts2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    719.5
    
    
    $
    325.7Accounts receivable (Note 4)
    
    
    596.2
    
    
    
    442.3Inventories (Note 5)
    
    
    428.1
    
    
    
    501.3Prepaid expenses and other current assets
    
    
    36.7
    
    
    
    40.9Current portion of derivative instrument assets (Note 6)
    
    
    30.8
    
    
    
    1,811.3
    
    
    
    1,310.2Derivative instrument assets (Note 6)
    
    
    104.2
    
    
    
    Property, plant and equipment (Note 7)
    
    
    3,887.4
    
    
    
    3,525.8Investments (Note 8)
    
    
    3,581.5
    
    
    
    1,148.9Other assets (Note 9)
    
    
    210.7
    
    
    
    105.8Intangible assets (Note 10)
    
    
    24.5
    
    
    
    29.3Goodwill (Note 10)
    
    
    97.0
    
    
    
    97.0$
    9,716.6
    
    
    $
    6,217.0LiabilitiesCurrent liabilitiesShort-term debt (Note 11)
    
    $
    90.0
    
    
    $
    157.9Accounts payable and accrued charges (Note 12)
    
    
    911.7
    
    
    
    545.2Current portion of long-term debt (Note 13)
    
    
    0.2
    
    
    
    400.41,001.9
    
    
    
    1,103.5Long-term debt (Note 13)
    
    
    1,339.4
    
    
    
    1,357.1Future income tax liability (Note 25)
    
    
    988.1
    
    
    
    632.1Accrued pension and other post-retirement benefits (Note 15)
    
    
    244.8
    
    
    
    219.6Accrued environmental costs and asset retirement obligations (Note 16)
    
    
    121.0
    
    
    
    110.3Other non-current liabilities and deferred credits
    
    
    2.7
    
    
    
    14.13,697.9
    
    
    
    3,436.7Commitments, Contingencies and Guarantees (Notes 14, 29 and 30, respectively)Shareholders EquityShare capital (Note 17)
    
    
    1,461.3
    
    
    
    1,431.6Unlimited authorization of common shares without par value;
issued and outstanding
316,411,209 and 314,403,147 shares at December 31, 2007 and 2006, respectivelyUnlimited authorization of first preferred shares; none outstandingContributed surplus (Note 18)
    
    
    98.9
    
    
    
    62.3Accumulated other comprehensive income
    
    
    2,178.9
    
    
    
    Retained earnings
    
    
    2,279.6
    
    
    
    1,286.46,018.7
    
    
    
    2,780.3$
    9,716.6
    
    
    $
    6,217.0
   -s- A. Laberge
    

-s- Keith MatetDirector
    
    Director




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##### 



C O N S O L I D A T E D     F I N A N C I A L    S  T A T  E  M E N T S

    73
 CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
 for the years ended December 31
    
    in millions of US dollars except per-share amounts2007
    
    
    2006
    
    
    2005Sales(Note 19)
    
    $
    5,234.2
    
    
    $
    3,766.7
    
    
    $
    3,847.2Less: Freight
    
    
    346.1
    
    
    
    255.8
    
    
    
    249.7Transportation and distribution
    
    
    124.1
    
    
    
    134.1
    
    
    
    121.9Cost of goods sold (Note 20)
    
    
    2,882.8
    
    
    
    2,374.8
    
    
    
    2,350.6Gross Margin
    
    
    1,881.2
    
    
    
    1,002.0
    
    
    
    1,125.0Selling and administrative (Note 21)
    
    
    212.6
    
    
    
    158.4
    
    
    
    144.5Provincial mining and other taxes (Note 22)
    
    
    135.4
    
    
    
    66.5
    
    
    
    137.2Foreign exchange loss (gain)
    
    
    70.2
    
    
    
    (4.4
    )
    
    
    12.5Other income (Note 23)
    
    
    (125.5
    )
    
    
    (94.0
    )
    
    
    (61.8
    )292.7
    
    
    
    126.5
    
    
    
    232.4Operating Income
    
    
    1,588.5
    
    
    
    875.5
    
    
    
    892.6Interest Expense(Note 24)
    
    
    68.7
    
    
    
    85.6
    
    
    
    82.3Income Before Income Taxes
    
    
    1,519.8
    
    
    
    789.9
    
    
    
    810.3Income Taxes(Note 25)
    
    
    416.2
    
    
    
    158.1
    
    
    
    267.4Net Income
    
    
    1,103.6
    
    
    
    631.8
    
    
    
    542.9Retained Earnings, Beginning of Year
    
    
    1,286.4
    
    
    
    716.9
    
    
    
    701.5Change in Accounting Policy(Note 3)
    
    
    0.2
    
    
    
    
    
    
    
    Repurchase of Common Shares(Note 17)
    
    
    
    
    
    
    
    
    
    
    (462.5
    )Dividends
    
    
    (110.6
    )
    
    
    (62.3
    )
    
    
    (65.0
    )Retained Earnings, End of Year
    
    $
    2,279.6
    
    
    $
    1,286.4
    
    
    $
    716.9Net Income per Share  Basic(Note 26)
    
    $
    3.50
    
    
    $
    2.03
    
    
    $
    1.67Net Income per Share  Diluted(Note 26)
    
    $
    3.40
    
    
    $
    1.98
    
    
    $
    1.63Dividends per Share
    
    $
    0.35
    
    
    $
    0.20
    
    
    $
    0.20




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##### 



74
    
    C O N S O L I D A T E D     F I N A N C I A L    S  T A T  E  M E N T S
 CONSOLIDATED STATEMENTS OF CASH FLOW
 for the years ended December 31
    
    in millions of US dollars2007
    
    
    2006
    
    
    2005Operating ActivitiesNet income
    
    $
    1,103.6
    
    
    $
    631.8
    
    
    $
    542.9Adjustments to reconcile net income to cash provided by operating activitiesDepreciation and amortization
    291.3
    
    
    
        242.4
    
    
    
    242.4Stock-based compensation
    38.6
    
    
    
    29.5
    
    
    
    27.5Loss (gain) on disposal of property, plant and equipment
and long-term investments
    7.9
    
    
    
    (8.6
    )
    
    
    11.8Provision for auction rate securities
    26.5
    
    
    
    
    
    
    
    Provision for plant shutdowns  phosphate segment
    
    
    
    
    6.3
    
    
    
    Foreign exchange on future income tax
    52.4
    
    
    
    0.5
    
    
    
    8.9Provision for future income tax
    119.6
    
    
    
    50.0
    
    
    
    40.1Undistributed earnings of equity investees
    (35.6
    )
    
    
    (24.5
    )
    
    
    (33.5
    )Unrealized gain on derivative instruments
    (21.1
    )
    
    
    
    
    
    
    Other long-term liabilities
    (57.9
    )
    
    
    13.4
    
    
    
    20.2Subtotal of adjustments
    
    
    421.7
    
    
    
    309.0
    
    
    
    317.4Changes in non-cash operating working capitalAccounts receivable
    (154.6
    )
    
    
    11.0
    
    
    
    (107.6
    )Inventories
    60.3
    
    
    
    13.9
    
    
    
    (119.9
    )Prepaid expenses and other current assets
    7.0
    
    
    
    0.2
    
    
    
    (5.8
    )Accounts payable and accrued charges
    250.9
    
    
    
    (269.1
    )
    
    
     238.1Subtotal of changes in non-cash operating working capital
    
    
    163.6
    
    
    
    (244.0
    )
    
    
    4.8Cash provided by operating activities
    
    
    1,688.9
    
    
    
    696.8
    
    
    
    865.1Investing ActivitiesAdditions to property, plant and equipment
    
    
    (607.2
    )
    
    
    (508.6
    )
    
    
    (382.7
    )Purchase of long-term investments
    
    
    (30.7
    )
    
    
    (352.5
    )
    
    
    (190.9
    )Purchase of investments in auction rate securities
    
    
    (132.5
    )
    
    
    
    
    
    
    Proceeds from disposal of property, plant and equipment
and long-term investments
    
    
    4.5
    
    
    
    22.0
    
    
    
    12.4Other assets and intangible assets
    
    
    7.8
    
    
    
    (0.6
    )
    
    
    5.9Cash used in investing activities
    
    
    (758.1
    )
    
    
    (839.7
    )
    
    
    (555.3
    )Cash before financing activities
    
    
    930.8
    
    
    
    (142.9
    )
    
    
    309.8Financing ActivitiesProceeds from long-term debt obligations
    
    
    1.5
    
    
    
    483.9
    
    
    
    Repayment and issue costs of long-term debt obligations
    
    
    (403.6
    )
    
    
    (1.3
    )
    
    
    (10.1
    )(Repayment of) proceeds from short-term debt obligations
    
    
    (67.9
    )
    
    
    (94.3
    )
    
    
    158.7Dividends
    
    
    (93.6
    )
    
    
    (60.9
    )
    
    
    (65.4
    )Repurchase of common shares
    
    
    
    
    
    
    
    
    
    
    (851.9
    )Issuance of common shares
    
    
    26.6
    
    
    
    47.3
    
    
    
    93.9Cash (used in) provided by financing activities
    
    
    (537.0
    )
    
    
    374.7
    
    
    
    (674.8
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    393.8
    
    
    
    231.8
    
    
    
    (365.0
    )Cash and Cash Equivalents, Beginning of Year
    
    
    325.7
    
    
    
    93.9
    
    
    
    458.9Cash and Cash Equivalents, End of Year
    
    $
    719.5
    
    
    $
    325.7
    
    
    $
    93.9Cash and cash equivalents comprised of:Cash
    
    $
    23.1
    
    
    $
    7.9
    
    
    $
    18.4Short-term investments
    
    
    696.4
    
    
    
    317.8
    
    
    
    75.5$
    719.5
    
    
    $
    325.7
    
    
    $
    93.9Supplemental cash flow disclosureInterest paid
    
    $
    93.9
    
    
    $
    106.8
    
    
    $
    86.3Income taxes paid
    
    $
    221.0
    
    
    $
    226.8
    
    
    $
    141.6




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##### 



C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S
    
    75


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 for the year ended December 31, 2007
    
    in millions of US dollars Before
    
    
    
    
    
    Net ofIncome Taxes
    
    Income Taxes
    
    Income TaxesNet Income
    
    $
    1,519.8
    
    
    $
    416.2
    
    
    $
    1,103.6Other comprehensive incomeNet increase in unrealized gains on available-for-sale securities1
    
    
    1,396.2
    
    
    
    87.1
    
    
    
    1,309.1Net gains on derivatives designated as cash flow hedges2
    
    
    49.4
    
    
    
    14.8
    
    
    
    34.6Reclassification to income of net gains on cash flow hedges2
    
    
    (57.8
    )
    
    
    (17.3
    )
    
    
    (40.5
    )Unrealized foreign exchange gains on translation of
self-sustaining foreign operations
    
    
    6.7
    
    
    
    
    
    
    
    6.7Other Comprehensive Income
    
    $
    1,394.5
    
    
    $
    84.6
    
    
    $
    1,309.9Comprehensive Income
    
    $
    2,914.3
    
    
    $
    500.8
    
    
    $
    2,413.5
 1 Available-for-sale securities are comprised of shares in Israel Chemicals Ltd., Sinofert Holdings Limited and investments in auction rate securities.2 Cash flow hedges are comprised of natural gas derivative instruments.
 CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
 as at and for the year ended December 31, 2007
    
    in millions of US dollars
 Net unrealized
    
    Net unrealized
    
    Unrealized foreigngains on
    
    gains on derivatives
    
    exchange gainsavailable-for-sale
    
    designated as
    
    on self-sustaining(Net of related income taxes)
    
    securities
    
    cash flow hedges
    
    foreign operations
    
    TotalCumulative effect adjustment at
January 1, 2007 (Note 3)
    
    $
    789.6
    
    
    $
    79.4
    
    
    $
    
    
    
    $
    869.0Increase (decrease) for 2007
    
    
    1,309.1
    
    
    
    (5.9
    )
    
    
    6.7
    
    
    
    1,309.9Accumulated other comprehensive income,
December 31, 2007
    
    $
    2,098.7
    1
    
    $
    73.5
    2
    
    $
    6.7
    3
    
    $
    2,178.9Retained earnings, December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,279.6Accumulated Other Comprehensive Income and
Retained Earnings, December 31, 2007
    
    $
    4,458.5
 1 2 3




Notes to the PotashCorp Consolidated Financial Statements





1.
    
    
    Description of Business
    
    
    762.
    
    
    Significant Accounting Policies
    
    
    763.
    
    
    Changes in Accounting Policies
    
    
    814.
    
    
    Accounts Receivable
    
    
    825.
    
    
    Inventories
    
    
    826.
    
    
    Derivative Financial Instruments
    
    
    837.
    
    
    Property, Plant and Equipment
    
    
    838.
    
    
    Investments
    
    
    849.
    
    
    Other Assets
    
    
    8510.
    
    
    Intangible Assets and Goodwill
    
    
    8511.
    
    
    Short-Term Debt
    
    
    8512.
    
    
    Accounts Payable and Accrued Charges
    
    
    8513.
    
    
    Long-Term Debt
    
    
    86
 14.
    
    
    Commitments
    
    
    8715.
    
    

Pension
and Other Post-Retirement Benefits
    
    
    8716.
    
    
    Environmental Costs and Asset Retirement Obligations
    
    
    9117.
    
    
    Share Capital
    
    
    9218.
    
    
    Contributed Surplus
    
    
    9319.
    
    
    Segment Information
    
    
    9320.
    
    
    Cost of Goods Sold
    
    
    9521.
    
    
    Selling and Administrative
    
    
    9622.
    
    
    Provincial Mining and 
Other Taxes
    
    
    9623.
    
    
    Other Income
    
    
    9624.
    
    
    Interest Expense
    
    
    96
 25.
    
    
    Income Taxes
    
    
    9626.
    
    
    Net Income per Share
    
    
    9827.
    
    
    Stock-Based Compensation
    
    
    9828.
    
    
    Financial Instruments and Risk Management
    
    
    10029.
    
    
    Contingencies
    
    
    10130.
    
    
    Guarantees
    
    
    10331.
    
    
    Related Party Transactions
    
    
    10332.
    
    
    Comparative Figures
    
    
    10433.
    
    

Reconciliation
of Canadian and United States Generally Accepted
Accounting Principles
    
    
    10434.
    
    
    Subsequent Events
    
    
    111




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##### 



76
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements


1. DESCRIPTION OF BUSINESS
  ·
    
    Potash
 
    
    five mines and mills and mining rights to potash reserves at a sixth location, all in the
province of Saskatchewan
    
    one mine and mill in the province of New Brunswick
 ·
    
    Phosphate
 
    
    a mine and processing plants in the state of North Carolina
    
    a mine and two processing plants in the state of Florida
    
    a processing plant in the state of Louisiana
    
    phosphate feed plants in five states and one in Brazil
    
    an industrial phosphoric acid plant in the state of Ohio
 ·
    
    Nitrogen
 
    
    three plants in the states of Georgia, Louisiana and Ohio
    
    large-scale operations in Trinidad
   2. SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Principles of Consolidation
  ·
    
    PCS Sales (Canada) Inc.
 
    
    PCS Joint Venture, Ltd. (PCS Joint Venture)
 ·
    
    PCS Sales (USA), Inc.
 ·
    
    PCS Phosphate Company, Inc. (PCS Phosphate)
 
    
    PCS Purified Phosphates
 ·
    
    White Springs Agricultural Chemicals, Inc. (White Springs)·
    
    PCS Nitrogen Fertilizer, L.P.·
    
    PCS Nitrogen Ohio, L.P.
 ·
    
    PCS Nitrogen Trinidad Limited
 ·
    
    PCS Cassidy Lake Company (PCS Cassidy Lake)·
    
    PCS Fosfatos do Brasil Ltda.
  Cash Equivalents
  Inventories




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##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    77
 2. Significant Accounting Policies continued
 Prepaid Expenses
  Derivative Financial Instruments
 
    
    Natural gas futures, swaps and option agreements to manage the cost of natural gas, generally
designated as cash flow hedges of anticipated transactions. The portion of gain or loss on
derivative instruments designated as cash flow hedges that are deferred in accumulated other
comprehensive income (AOCI) is reclassified into cost of goods sold when the product
containing the hedged item impacts earnings. Any hedge ineffectiveness is recorded in cost of
goods sold in the current period.
 
    
    Interest rate swaps designated as fair value hedges to manage the interest rate mix of the
companys total debt portfolio and related overall cost of borrowing. Hedge accounting
treatment results in interest expense on the related debt being reflected at hedged rates
rather than original contractual interest rates.
 
    
    Foreign currency forward contracts for the primary purpose of limiting exposure to exchange
rate fluctuations relating to expenditures denominated in currencies other than the US dollar.
These contracts are not designated as hedging instruments for accounting purposes.
Accordingly, they are marked-to-market with changes in fair value recognized through foreign
exchange gain or loss in earnings.
 
    
    Agreement for the forward purchase of shares of Sinofert at a fixed Hong Kong dollar amount
per share. This contract was not designated as a hedging instrument for accounting purposes.
Accordingly, changes in fair value are recognized through other income in earnings.
 Property, Plant and Equipment




---



##### 



78
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
 2. Significant Accounting Policies continued
 Investments
   Other Assets
    Intangible Assets
  Goodwill
 Asset Impairment
   Leases
  Long-Term Debt
   Pension and Other Post-Retirement Benefits




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    79
 2. Significant Accounting Policies continued
 Environmental Costs and Asset Retirement Obligations
 Income Taxes
   Stock-Based Compensation Plans




---



##### 



80
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
 2. Significant Accounting Policies continued
 Foreign Exchange Transactions
    Fair Value
 Revenue Recognition
  Recent Accounting Pronouncements
 Determining the Variability to be Considered in Applying the Variable Interest Entity Standards
  Capital Disclosures
  Financial Instruments




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    81
 2. Significant Accounting Policies continued
 Inventories
  International
Financial Reporting Standards
 Goodwill
and Intangible Assets
  3.
CHANGES IN ACCOUNTING POLICIES
 Comprehensive Income, Equity, Financial Instruments and Hedges
  
    
    Financial assets are classified as loans and receivables, held-to-maturity,
held-for-trading or available-for-sale. Loans and receivables include all loans and
receivables except debt securities and are accounted for at amortized cost.
Held-to-maturity classification is restricted to fixed maturity instruments that the
company intends and is able to hold to maturity and are accounted for at amortized cost.
Held-for-trading instruments include all derivative financial instruments not included in a
hedging relationship and any designated instruments and are recorded at fair value with
realized and unrealized gains and losses reported in net income. The remaining financial
assets are classified as available-for-sale. These are recorded at fair value with
unrealized gains and losses reported in a new category of the Consolidated Statements of
Financial Position under shareholders equity called AOCI;
    
    Financial liabilities are classified as either held-for-trading or other.
Held-for-trading instruments are recorded at fair value with realized and unrealized gains
and losses reported in net income. Other instruments are accounted for at amortized cost
with gains and losses reported in net income in the period that the liability is
derecognized; and
    
    Derivative instruments (derivatives) are classified as held-for-trading unless
designated as hedging instruments. All derivatives are recorded at fair value on the
Consolidated Statements of Financial




---



##### 



82
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
 3. Changes in Accounting Policies continued
 
    
    The companys investments in Israel Chemicals Ltd. (ICL) and Sinofert Holdings Limited
(Sinofert) have been classified as available-for-sale and recorded at fair value in the
Consolidated Statements of Financial Position, resulting in an increase in investments of
$887.8, an increase to AOCI of $789.6 and an increase in future income tax liability of
$98.2;
  
    
    Bond issue costs were reclassified from other assets to long-term debt and deferred swap
gains were reclassified from other non-current liabilities to long-term debt, resulting in
a reduction in other assets of $23.9, a reduction in other non-current liabilities of $6.6
and a reduction in long-term debt of $17.3;
  
    
    The company employs futures, swaps and option agreements to establish the cost of a
portion of its natural gas requirements. These derivative instruments generally qualify for
hedge accounting. Derivative instruments were recorded on the Consolidated Statements of
Financial Position at fair value, resulting in an increase in current portion of derivative
instrument assets of $50.9, an increase in derivative instrument assets (non-current) of
$69.4, an increase in future income tax liability of $45.6 and an increase in AOCI of
$74.7;
 
    
    Hedge ineffectiveness on these derivative instruments was recorded as a cumulative effect
adjustment to opening retained earnings, net of tax, resulting in an increase in retained
earnings of $0.2 and a decrease in AOCI of $0.2. The effect on basic and diluted earnings
per share was not significant; and
 
    
    Deferred realized hedging gains were reclassified from inventory to AOCI, resulting in an
increase in inventory of $8.0, an increase in future income tax liability of $3.1 and an
increase in AOCI of $4.9.
 Accounting Changes
  Stripping Costs Incurred in the Production Phase of a Mining Operation
  4.
ACCOUNTS RECEIVABLE
 2007
    
    
    2006Trade accounts  Canpotex
    
    $
    110.2
    
    
    $
    84.1 Other
    
    
    439.0
    
    
    
    329.3Non-trade accounts
    
    
    52.9
    
    
    
    33.6602.1
    
    
    
    447.0Less allowance for doubtful accounts
    
    
    (5.9
    )
    
    
    (4.7
    )$
    596.2
    
    
    $
    442.3
 5.
INVENTORIES
 20071
    
    
    2006Finished products
    
    $
    186.6
    
    
    $
    237.1Intermediate products
    
    
    70.7
    
    
    
    98.5Raw materials
    
    
    68.0
    
    
    
    62.4Materials and supplies
    
    
    102.8
    
    
    
    103.3$
    428.1
    
    
    $
    501.3
 1
    
    See changes in accounting policies (Note 3).




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    83
  
      6. DERIVATIVE FINANCIAL INSTRUMENTS
 20071Assets
    
    Liabilities
    
    NetNatural gas hedging
    
    $
    127.6
    
    
    $
    0.1
    
    
    $
    127.5Natural gas non-hedging
    
    
    0.1
    
    
    
    0.1
    
    
    
    Foreign currency and other
forward purchase contracts
    
    
    7.3
    
    
    
    
    
    
    
    7.3Total
    
    
    135.0
    
    
    
    0.2
    
    
    
    134.8Less current portion
    
    
    (30.8
    )
    
    
    (0.2
    )
    
    
    (30.6
    )Long-term portion
    
    $
    104.2
    
    
    $
    
    
    
    $
    104.2
 1
 7. PROPERTY, PLANT AND EQUIPMENT
 20071AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    248.9
    
    
    $
    53.9
    
    
    $
    195.0Buildings and improvements
    
    
    647.9
    
    
    
    220.5
    
    
    
    427.4Machinery and equipment
    
    
    5,074.5
    
    
    
    1,937.3
    
    
    
    3,137.2Mine development costs
    
    
    196.8
    
    
    
    69.0
    
    
    
    127.8$
    6,168.1
    
    
    $
    2,280.7
    
    
    $
    3,887.4
 1
 2006AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    233.3
    
    
    $
    51.9
    
    
    $
    181.4Buildings and improvements
    
    
    547.9
    
    
    
    206.4
    
    
    
    341.5Machinery and equipment
    
    
    4,618.0
    
    
    
    1,750.4
    
    
    
    2,867.6Mine development costs
    
    
    200.4
    
    
    
    65.1
    
    
    
    135.3$
    5,599.6
    
    
    $
    2,073.8
    
    
    $
    3,525.8




---



##### 



84
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
  7. Property, Plant and Equipment continued
      8. INVESTMENTS
 20071
    
    
    2006Investments at equitySociedad
Quimica y Minera de Chile S.A.
(SQM)  32 percent ownership;
quoted market value of $1,751.7
    
    $
    550.0
    
    
    $
    514.7Arab Potash Company (APC) 
28 percent ownership;
quoted market value of $1,121.5
    
    
    231.2
    
    
    
    223.7Other
    
    
    18.8
    
    
    
    19.1Available-for-sale investmentsSinofert  19 percent ownership
    
    
    1,081.2
    
    
    
    223.7ICL  10 percent ownership
    
    
    1,644.3
    
    
    
    167.7Auction rate securities
    
    
    56.0
    
    
    
    $
    3,581.5
    
    
    $
    1,148.9
 1




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    85
  8. Investments continued
    9. OTHER ASSETS
 20071
    
    
    2006Deferred charges  net of accumulated
amortization of $16.9 (2006  $50.0)
    
    $
    24.0
    
    
    $
    44.5Accrued pension benefit asset
    
    
    111.7
    
    
    
    26.8Up-front lease costs  net of
accumulated amortization
of $2.2 (2006  $NIL)
    
    
    24.7
    
    
    
    Other
    
    
    50.3
    
    
    
    34.5$
    210.7
    
    
    $
    105.8
 1
  10. INTANGIBLE ASSETS AND GOODWILL
 2007
    
    
    2006Intangible assets net of accumulated
amortization of $27.9 (2006  $22.6)
    
    $
    24.5
    
    
    $
    29.3Goodwill net of accumulated
amortization of $7.3 (2006  $7.3)
    
    $
    97.0
    
    
    $
    97.0
 11. SHORT-TERM DEBT
   12. ACCOUNTS PAYABLE AND ACCRUED CHARGES
 2007
    
    
    2006Trade accounts
    
    $
    371.0
    
    
    $
    242.9Income taxes
    
    
    188.4
    
    
    
    70.0Accrued compensation
    
    
    94.0
    
    
    
    49.5Deferred revenue
    
    
    42.1
    
    
    
    25.2Margin deposits
    
    
    33.9
    
    
    
    22.8Other taxes
    
    
    32.2
    
    
    
    12.9Dividends
    
    
    32.0
    
    
    
    16.1Accrued deferred share units
    
    
    29.7
    
    
    
    10.2Accrued interest
    
    
    29.2
    
    
    
    24.6Current portion accrued environmental
costs and asset retirement obligations
    
    
    13.7
    
    
    
    9.0Current portion pension and other
post-retirement benefits
    
    
    7.9
    
    
    
    8.9Other payables
    
    
    37.6
    
    
    
    53.1$
    911.7
    
    
    $
    545.2




---



##### 



86

Notes to the PotashCorp 2007 Consolidated Financial Statements
  13. LONG-TERM DEBT
 20071
    
    2006EffectiveInterest Rate
2Notes Payable7.125% notes payable June 15, 2007
    
    $
    
    
    
    
    
    
    
    $
    400.07.750% notes payable May 31, 2011
    
    
    600.0
    
    
    
    7.65
    %
    
    
    600.04.875% notes payable March 1, 2013
    
    
    250.0
    
    
    
    5.08
    %
    
    
    250.05.875% notes payable December 1, 2036
    
    
    500.0
    
    
    
    6.11
    %
    
    
    500.0The above series of notes were issued under
US shelf registration statements covering
up to $4,000.0 of debt securities. The notes
are unsecured and there are no sinking fund
requirements prior to maturity. The 2011,
2013 and 2036 notes are redeemable, in whole
or in part, at the companys option at any
time prior to maturity for a price at
least equal to the principal amount of the
notes to be redeemed, plus accrued interest.
Under certain conditions related to change
in control, the company is required to make
an offer to purchase all, or any part, of
the 2036 notes at 101 percent of the
principal amount of the notes repurchased,
plus accrued interest.Other
    
    
    8.5
    
    
    
    7.60
    %
    
    
    7.51,358.5
    
    
    
    
    
    
    
    1,757.5Less net unamortized debt costs
    
    
    (24.6
    )
    
    
    
    
    
    
    Add unamortized interest rate swap gains
    
    
    5.3
    
    
    
    
    
    
    
    1,339.2
    
    
    
    
    
    
    
    1,757.5Less current maturities
    
    
    (0.2
    )
    
    
    
    
    
    
    (400.4
    )Add current portion of amortization
    
    
    0.4
    
    
    
    
    
    
    
    $
    1,339.4
    
    
    
    
    
    
    $
    1,357.1
 1
 2
    
 2008
    
    $
    0.22009
    
    
    0.32010
    
    
    1.82011
    
    
    600.32012
    
    
    5.9Subsequent years
    
    
    750.0$
    1,358.5




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    
    87
  
      14. COMMITMENTS
 Lease Commitments
  Purchase Commitments
    Other Commitments
   Operating
    
    Purchase
    
    OtherLeases
    
    Commitments
    
    Commitments2008
    
    $
    97.4
    
    
    $
    272.1
    
    
    $
    22.72009
    
    
    89.5
    
    
    
    119.0
    
    
    
    19.52010
    
    
    79.3
    
    
    
    102.0
    
    
    
    18.72011
    
    
    70.2
    
    
    
    82.3
    
    
    
    3.92012
    
    
    66.6
    
    
    
    66.0
    
    
    
    3.7Thereafter
    
    
    254.2
    
    
    
    272.8
    
    
    
    19.8Total
    
    $
    657.2
    
    
    $
    914.2
    
    
    $
    88.3
 15. PENSION AND OTHER POST-RETIREMENT BENEFITS
 Pension Plans
 Canada
   United States
  Trinidad
  Other Post-Retirement Plans




---



##### 



88
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
  15. Pension and Other Post-Retirement Benefits continued
 Defined Benefit Plans
  Pension
    
    
    Other2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Costs arising in the periodService cost for benefits earned during the year
    
    $
    15.3
    
    
    $
    14.2
    
    
    $
    13.8
    
    
    $
    6.1
    
    
    $
    4.7
    
    
    $
    5.7Interest cost on projected benefit obligations
    
    
    36.5
    
    
    
    33.5
    
    
    
    31.1
    
    
    
    14.9
    
    
    
    12.4
    
    
    
    13.3Actual return on plan assets
    
    
    (44.3
    )
    
    
    (42.1
    )
    
    
    (34.3
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial (gain) loss
    
    
    (33.5
    )
    
    
    8.9
    
    
    
    27.9
    
    
    
    (12.0
    )
    
    
    18.4
    
    
    
    (12.7
    )Plan amendments
    
    
    0.3
    
    
    
    1.4
    
    
    
    3.5
    
    
    
    
    
    
    
    (1.7
    )
    
    
    11.5Plan curtailments
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    
    
    
    
    2.0
    
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    Costs arising in the period
    
    
    (25.7
    )
    
    
    17.9
    
    
    
    44.8
    
    
    
    9.0
    
    
    
    33.8
    
    
    
    17.8Difference between costs arising in the period and
costs recognized in the period in respect of:Return on plan assets
    
    
    1.5
    
    
    
    3.9
    
    
    
    (2.7
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    40.8
    
    
    
    (1.7
    )
    
    
    (23.6
    )
    
    
    16.4
    
    
    
    (16.4
    )
    
    
    15.4Plan amendments
    
    
    1.5
    
    
    
    1.0
    
    
    
    (2.3
    )
    
    
    (2.9
    )
    
    
    (1.1
    )
    
    
    (13.0
    )Transitional obligation
    
    
    0.9
    
    
    
    1.6
    
    
    
    1.4
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.3Net expense
    
    $
    19.0
    
    
    $
    22.7
    
    
    $
    17.6
    
    
    $
    22.7
    
    
    $
    16.7
    
    
    $
    20.5
  Pension
    
    
    Other2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Discount rate  obligation
    
    
    6.50
    %
    
    
    5.85
    %
    
    
    5.70
    %
    
    
    6.50%
    
    
    
    5.85%
    
    
    
    5.70%Discount rate  expense
    
    
    5.85
    %
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    5.85%
    
    
    
    5.70%
    
    
    
    5.75%Long-term rate of return on assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.50
    %
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aRate of increase in compensation levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
   2007
    
    
    2006
    
    
    2005Health-care cost trend rates assumed for next year
    
    
    6.00%
    
    
    
    6.00%
    
    
    
    6.00%Ultimate health-care cost trend rate assumed
    
    
    6.00%
    
    
    
    6.00%
    
    
    
    6.00%Year that the rate reaches the ultimate trend rate
    
    
    2007
    
    
    
    2006
    
    
    
    2005




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    
    89
  15. Pension and Other Post-Retirement Benefits continued
   Pension
    
    
    Other
    
    
    Total2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Change in benefit obligationsBalance, beginning of year
    
    $
    626.4
    
    
    $
    595.3
    
    
    $
    247.4
    
    
    $
    222.6
    
    
    $
    873.8
    
    
    $
    817.9Service cost
    
    
    15.3
    
    
    
    14.2
    
    
    
    6.1
    
    
    
    4.7
    
    
    
    21.4
    
    
    
    18.9Interest cost
    
    
    36.5
    
    
    
    33.5
    
    
    
    14.9
    
    
    
    12.4
    
    
    
    51.4
    
    
    
    45.9Participants contributions
    
    
    0.3
    
    
    
    0.3
    
    
    
    
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.4Actuarial (gain) loss
    
    
    (33.5
    )
    
    
    8.9
    
    
    
    (12.0
    )
    
    
    18.4
    
    
    
    (45.5
    )
    
    
    27.3Foreign exchange rate changes
    
    
    6.4
    
    
    
    2.0
    
    
    
    3.6
    
    
    
    (0.2
    )
    
    
    10.0
    
    
    
    1.8Plan amendments
    
    
    0.3
    
    
    
    1.4
    
    
    
    
    
    
    
    (1.7
    )
    
    
    0.3
    
    
    
    (0.3
    )Benefits paid
    
    
    (28.3
    )
    
    
    (29.2
    )
    
    
    (8.2
    )
    
    
    (8.9
    )
    
    
    (36.5
    )
    
    
    (38.1
    )Balance, end of year
    
    
    623.4
    
    
    
    626.4
    
    
    
    251.8
    
    
    
    247.4
    
    
    
    875.2
    
    
    
    873.8Change in plan assetsFair value, beginning of year
    
    
    519.9
    
    
    
    480.8
    
    
    
    
    
    
    
    
    
    
    
    519.9
    
    
    
    480.8Actual return on plan assets
    
    
    44.3
    
    
    
    42.1
    
    
    
    
    
    
    
    
    
    
    
    44.3
    
    
    
    42.1Employer contributions
    
    
    99.6
    
    
    
    24.7
    
    
    
    8.2
    
    
    
    8.8
    
    
    
    107.8
    
    
    
    33.5Participants contributions
    
    
    0.3
    
    
    
    0.3
    
    
    
    
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.4Foreign exchange rate changes
    
    
    2.4
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    2.4
    
    
    
    1.2Benefits paid
    
    
    (28.3
    )
    
    
    (29.2
    )
    
    
    (8.2
    )
    
    
    (8.9
    )
    
    
    (36.5
    )
    
    
    (38.1
    )Fair value, end of year
    
    
    638.2
    
    
    
    519.9
    
    
    
    
    
    
    
    
    
    
    
    638.2
    
    
    
    519.9Funded status
    
    
    14.8
    
    
    
    (106.5
    )
    
    
    (251.8
    )
    
    
    (247.4
    )
    
    
    (237.0
    )
    
    
    (353.9
    )Valuation allowance
    
    
    (16.1
    )
    
    
    (16.1
    )
    
    
    
    
    
    
    
    
    
    
    (16.1
    )
    
    
    (16.1
    )Unamortized net actuarial loss
    
    
    76.9
    
    
    
    117.4
    
    
    
    42.0
    
    
    
    58.0
    
    
    
    118.9
    
    
    
    175.4Unamortized prior service cost
    
    
    3.6
    
    
    
    5.7
    
    
    
    (15.0
    )
    
    
    (18.5
    )
    
    
    (11.4
    )
    
    
    (12.8
    )Unamortized transitional obligation
    
    
    4.2
    
    
    
    5.1
    
    
    
    0.4
    
    
    
    0.6
    
    
    
    4.6
    
    
    
    5.7Accrued pension and other
post-retirement benefit asset (liability)
    
    $
    83.4
    
    
    $
    5.6
    
    
    $
    (224.4
    )
    
    $
    (207.3
    )
    
    $
    (141.0
    )
    
    $
    (201.7
    )Amounts included in:Other assets (Note 9)
    
    $
    111.4
    
    
    $
    26.4
    
    
    $
    0.3
    
    
    $
    0.4
    
    
    $
    111.7
    
    
    $
    26.8LiabilitiesCurrent (Note 12)
    
    
    
    
    
    
    (0.3
    )
    
    
    (7.9
    )
    
    
    (8.6
    )
    
    
    (7.9
    )
    
    
    (8.9
    )Long-term
    
    
    (28.0
    )
    
    
    (20.5
    )
    
    
    (216.8
    )
    
    
    (199.1
    )
    
    
    (244.8
    )
    
    
    (219.6
    )$
    83.4
    
    
    $
    5.6
    
    
    $
    (224.4
    )
    
    $
    (207.3
    )
    
    $
    (141.0
    )
    
    $
    (201.7
    )




---



##### 



90
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
  15. Pension and Other Post-Retirement Benefits continued
    2007
    
    
    2006Projected benefit obligation
    
    $
    91.3
    
    
    $
    597.5Accumulated benefit obligation
    
    
    85.0
    
    
    
    543.4Fair value of plan assets
    
    
    59.7
    
    
    
    457.7
 Sensitivity of Assumptions
  2007
    
    
    2006
    
    
    2005As reported:Benefit obligation
    
    $
    251.8
    
    
    $
    247.4
    
    
    $
    222.6Aggregate of service
and interest cost
    
    
    21.0
    
    
    
    17.1
    
    
    
    19.0Impact of increase of
1.0 percentage point:Benefit obligation
    
    
    36.9
    
    
    
    36.7
    
    
    
    31.4Aggregate of service
and interest cost
    
    
    3.9
    
    
    
    2.8
    
    
    
    3.2Impact of decrease of
1.0 percentage point:Benefit obligation
    
    
    (29.7
    )
    
    
    (29.2
    )
    
    
    (27.8
    )Aggregate of service
and interest cost
    
    
    (3.0
    )
    
    
    (2.2
    )
    
    
    (2.9
    )
  Plan Assets
  Asset Category
    
    Target
    
    
    2007
    
    
    2006Equity securities
    
    
    65%
    
    
    
    64%
    
    
    
    66%Debt securities
    
    
    35%
    
    
    
    36%
    
    
    
    34%Real estate
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    100%
    
    
    
    100%
    
    
    
    100%
 Defined Contribution Plans




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    
    91
  15. Pension and Other Post-Retirement Benefits continued
    Cash Payments
  Estimated Future Benefit Payments
  OtherReduction dueto MedicarePension
    
    Gross
    
    Part D Subsidy
    
    Net2008
    
    $
    29.6
    
    
    $
    10.5
    
    
    $
    1.0
    
    
    $
    9.52009
    
    
    32.6
    
    
    
    11.5
    
    
    
    1.2
    
    
    
    10.32010
    
    
    33.1
    
    
    
    12.5
    
    
    
    1.3
    
    
    
    11.22011
    
    
    35.2
    
    
    
    13.6
    
    
    
    1.5
    
    
    
    12.12012
    
    
    39.0
    
    
    
    14.5
    
    
    
    1.7
    
    
    
    12.82013-2017
    
    
    232.3
    
    
    
    89.6
    
    
    
    11.7
    
    
    
    77.9
 16. ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS
 Site Assessment and Remediation Costs




---



##### 



92
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
  16. Environmental Costs and Asset Retirement Obligations continued
 Environmental Operating Costs and Capital Expenditures
    2007
    
    
    2006Asset retirement obligations, beginning of year
    
    $
    100.7
    
    
    $
    91.8Liabilities incurred
    
    
    6.8
    
    
    
    7.2Liabilities settled
    
    
    (4.5
    )
    
    
    (3.6
    )Accretion expense
    
    
    4.9
    
    
    
    3.3Revisions in timing and amount of estimated cash flows
    
    
    8.7
    
    
    
    2.0Asset retirement obligations, end of year
    
    
    116.6
    
    
    
    100.7Other environmental liabilities
    
    
    18.1
    
    
    
    18.6Less current portion (Note 12)
    
    
    (13.7
    )
    
    
    (9.0
    )$
    121.0
    
    
    $
    110.3
 17. SHARE CAPITAL
 Authorized
  Issued
 2007
    
    2006
    
    2005Consideration
    
    Consideration
    
    ConsiderationIssued, beginning of year
    
    $
    1,431.6
    
    
    $
    1,379.3
    
    
    $
    1,408.4Shares issued under option plans
    
    
    28.6
    
    
    
    50.9
    
    
    
    95.7Shares issued for dividend reinvestment plan
    
    
    1.1
    
    
    
    1.4
    
    
    
    0.3Shares repurchased
    
    
    
    
    
    
    
    
    
    
    (125.1
    )Issued, end of year
    
    $
    1,461.3
    
    
    $
    1,431.6
    
    
    $
    1,379.3
 2007
    
    2006
    
    2005Number of
    
    Number of
    
    Number ofCommon Shares
    
    Common Shares
    
    Common SharesIssued, beginning of year
    
    
    314,403,147
    
    
    
    310,781,376
    
    
    
    331,891,509Shares issued under option plans
    
    
    1,995,460
    
    
    
    3,581,424
    
    
    
    7,378,782Shares issued for dividend reinvestment plan
    
    
    12,602
    
    
    
    40,347
    
    
    
    11,085Shares repurchased
    
    
    
    
    
    
    
    
    
    
    (28,500,000
    )Issued, end of year
    
    
    316,411,209
    
    
    
    314,403,147
    
    
    
    310,781,376
 Stock Split
  Normal Course Issuer Bid




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    
    93
  17. Share Capital continued
   18. CONTRIBUTED SURPLUS
 2007
    
    
    2006
    
    
    2005Balance, beginning of year
    
    $
    62.3
    
    
    $
    36.3
    
    
    $
    275.7Stock-based compensation
    
    
    36.6
    
    
    
    26.0
    
    
    
    24.9Share repurchases (Note 17)
    
    
    
    
    
    
    
    
    
    
    (264.3
    )Balance, end of year
    
    $
    98.9
    
    
    $
    62.3
    
    
    $
    36.3
 19. SEGMENT INFORMATION
  2007Potash
    
    Nitrogen
    
    Phosphate
    
    All others
    
    ConsolidatedSales
    
    $
    1,797.2
    
    
    $
    1,799.9
    
    
    $
    1,637.1
    
    
    $
    
    
    
    $
    5,234.2Freight
    
    
    178.1
    
    
    
    55.6
    
    
    
    112.4
    
    
    
    
    
    
    
    346.1Transportation and distribution
    
    
    39.1
    
    
    
    51.6
    
    
    
    33.4
    
    
    
    
    
    
    
    124.1Net sales  third party
    
    
    1,580.0
    
    
    
    1,692.7
    
    
    
    1,491.3
    
    
    
    Cost of goods sold
    
    
    667.7
    
    
    
    1,156.6
    
    
    
    1,058.5
    
    
    
    
    
    
    
    2,882.8Gross margin
    
    
    912.3
    
    
    
    536.1
    
    
    
    432.8
    
    
    
    
    
    
    
    1,881.2Inter-segment sales
    
    
    
    
    
    
    112.3
    
    
    
    1.9
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    71.7
    
    
    
    88.2
    
    
    
    121.1
    
    
    
    10.3
    
    
    
    291.3Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,809.6
    
    
    
    1,646.4
    
    
    
    1,955.4
    
    
    
    4,305.2
    
    
    
    9,716.6Additions to property, plant and equipment
    
    
    338.2
    
    
    
    89.7
    
    
    
    176.2
    
    
    
    3.1
    
    
    
    607.2
 2006Potash
    
    Nitrogen
    
    Phosphate
    
    All others
    
    ConsolidatedSales
    
    $
    1,227.5
    
    
    $
    1,284.1
    
    
    $
    1,255.1
    
    
    $
    
    
    
    $
    3,766.7Freight
    
    
    130.5
    
    
    
    36.8
    
    
    
    88.5
    
    
    
    
    
    
    
    255.8Transportation and distribution
    
    
    38.8
    
    
    
    52.2
    
    
    
    43.1
    
    
    
    
    
    
    
    134.1Net sales  third party
    
    
    1,058.2
    
    
    
    1,195.1
    
    
    
    1,123.5
    
    
    
    Cost of goods sold
    
    
    497.1
    
    
    
    879.5
    
    
    
    998.2
    
    
    
    
    
    
    
    2,374.8Gross margin
    
    
    561.1
    
    
    
    315.6
    
    
    
    125.3
    
    
    
    
    
    
    
    1,002.0Inter-segment sales
    
    
    5.7
    
    
    
    112.4
    
    
    
    7.2
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    58.3
    
    
    
    77.6
    
    
    
    94.6
    
    
    
    11.9
    
    
    
    242.4Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,478.0
    
    
    
    1,480.7
    
    
    
    1,753.9
    
    
    
    1,504.4
    
    
    
    6,217.0Additions to property, plant and equipment
    
    
    293.2
    
    
    
    75.5
    
    
    
    119.7
    
    
    
    20.2
    
    
    
    508.6




---



##### 



94
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
 19. Segment Information continued
 
 2005
 
 Potash
    
    
    Nitrogen
    
    
    Phosphate
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,341.1
    
    
    $
    1,368.8
    
    
    $
    1,137.3
    
    
    $
    
    
    
    $
    3,847.2Freight
    
    
    129.7
    
    
    
    39.9
    
    
    
    80.1
    
    
    
    
    
    
    
    249.7Transportation and distribution
    
    
    34.5
    
    
    
    49.5
    
    
    
    37.9
    
    
    
    
    
    
    
    121.9Net sales  third party
    
    
    1,176.9
    
    
    
    1,279.4
    
    
    
    1,019.3
    
    
    
    Cost of goods sold
    
    
    469.5
    
    
    
    960.7
    
    
    
    920.4
    
    
    
    
    
    
    
    2,350.6Gross margin
    
    
    707.4
    
    
    
    318.7
    
    
    
    98.9
    
    
    
    
    
    
    
    1,125.0Inter-segment sales
    
    
    5.8
    
    
    
    100.7
    
    
    
    14.0
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    64.5
    
    
    
    72.0
    
    
    
    95.6
    
    
    
    10.3
    
    
    
    242.4Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,236.8
    
    
    
    1,526.5
    
    
    
    1,723.0
    
    
    
    871.6
    
    
    
    5,357.9Additions to property, plant and equipment
    
    
    165.5
    
    
    
    99.3
    
    
    
    109.5
    
    
    
    8.4
    
    
    
    382.7
  
 
   Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2007Sales to customers outside the companyCanada
    
    $
    88.0
    
    
    $
    127.0
    
    
    $
    
    
    
    $
    
    
    
    $
    215.0United States
    
    
    764.7
    
    
    
    2,065.6
    
    
    
    661.6
    
    
    
    
    
    
    
    3,491.9PhosChem
(PhosChems 2007 sales were made to: India 51%, China
6%, other Asian countries 8%, Latin America 31%, other countries
4%)
    
    
    
    
    
    
    264.6
    
    
    
    
    
    
    
    
    
    
    
    264.6Canpotex
(Canpotexs 2007 sales were made to: China 26%, Brazil 21%,
India 10%, other Asian countries 33%, other countries 10%)
    
    
    782.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    782.7Mexico
    
    
    23.1
    
    
    
    81.8
    
    
    
    
    
    
    
    
    
    
    
    104.9Brazil
    
    
    70.3
    
    
    
    
    
    
    
    
    
    
    
    23.1
    
    
    
    93.4Colombia
    
    
    26.2
    
    
    
    10.4
    
    
    
    46.8
    
    
    
    
    
    
    
    83.4Other Latin America
    
    
    42.2
    
    
    
    21.5
    
    
    
    63.1
    
    
    
    
    
    
    
    126.8Other
    
    
    
    
    
    
    35.5
    
    
    
    36.0
    
    
    
    
    
    
    
    71.5$
    1,797.2
    
    
    $
    2,606.4
    
    
    $
    807.5
    
    
    $
    23.1
    
    
    $
    5,234.2Operating income
    
    $
    537.8
    
    
    $
    652.5
    
    
    $
    296.9
    
    
    $
    101.3
    
    
    $
    1,588.5Capital assets and goodwill
    
    $
    1,504.3
    
    
    $
    1,848.6
    
    
    $
    587.2
    
    
    $
    44.3
    
    
    $
    3,984.4




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    95
 19. Segment Information continued
 Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2006Sales to customers outside the companyCanada
    
    $
    65.7
    
    
    $
    92.0
    
    
    $
    
    
    
    $
    
    
    
    $
    157.7United States
    
    
    557.5
    
    
    
    1,454.9
    
    
    
    530.2
    
    
    
    
    
    
    
    2,542.6PhosChem
(PhosChems 2006 sales were made to: India 40%, China 19%,
other Asian countries 14%, Latin America 22%, other countries
5%)
    
    
    
    
    
    
    232.2
    
    
    
    
    
    
    
    
    
    
    
    232.2Canpotex
(Canpotexs 2006 sales were made to: China 19%, India 10%,
other Asian countries 41%, Brazil 15%, other countries 15%)
    
    
    467.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467.1Mexico
    
    
    7.3
    
    
    
    72.1
    
    
    
    5.1
    
    
    
    
    
    
    
    84.5Brazil
    
    
    68.7
    
    
    
    
    
    
    
    
    
    
    
    16.2
    
    
    
    84.9Colombia
    
    
    20.2
    
    
    
    7.5
    
    
    
    32.3
    
    
    
    
    
    
    
    60.0Other Latin America
    
    
    41.0
    
    
    
    19.2
    
    
    
    38.3
    
    
    
    
    
    
    
    98.5Other
    
    
    
    
    
    
    37.9
    
    
    
    1.3
    
    
    
    
    
    
    
    39.2$
    1,227.5
    
    
    $
    1,915.8
    
    
    $
    607.2
    
    
    $
    16.2
    
    
    $
    3,766.7Operating income
    
    $
    426.9
    
    
    $
    216.4
    
    
    $
    171.8
    
    
    $
    60.4
    
    
    $
    875.5Capital assets and goodwill
    
    $
    1,207.7
    
    
    $
    1,761.3
    
    
    $
    610.4
    
    
    $
    43.4
    
    
    $
    3,622.8
 Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2005Sales to customers outside the companyCanada
    
    $
    69.3
    
    
    $
    105.9
    
    
    $
    
    
    
    $
    
    
    
    $
    175.2United States
    
    
    576.6
    
    
    
    1,470.9
    
    
    
    545.5
    
    
    
    
    
    
    
    2,593.0PhosChem
(PhosChems 2005 sales were made to: India 29%, China 29%,
other Asian countries 22%, Latin America 14%, other countries
6%)
    
    
    
    
    
    
    166.7
    
    
    
    
    
    
    
    
    
    
    
    166.7Canpotex
(Canpotexs 2005 sales were made to: China 29%, India 11%,
other Asian countries 33%, Brazil 13%, other countries 14%)
    
    
    577.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577.1Mexico
    
    
    10.5
    
    
    
    64.5
    
    
    
    
    
    
    
    
    
    
    
    75.0Brazil
    
    
    60.3
    
    
    
    3.7
    
    
    
    
    
    
    
    23.7
    
    
    
    87.7Colombia
    
    
    19.3
    
    
    
    9.3
    
    
    
    28.7
    
    
    
    
    
    
    
    57.3Other Latin America
    
    
    28.0
    
    
    
    5.7
    
    
    
    31.6
    
    
    
    
    
    
    
    65.3Other
    
    
    
    
    
    
    23.6
    
    
    
    26.3
    
    
    
    
    
    
    
    49.9$
    1,341.1
    
    
    $
    1,850.3
    
    
    $
    632.1
    
    
    $
    23.7
    
    
    $
    3,847.2Operating income
    
    $
    464.1
    
    
    $
    170.2
    
    
    $
    199.3
    
    
    $
    59.0
    
    
    $
    892.6Capital assets and goodwill
    
    $
    954.6
    
    
    $
    1,751.1
    
    
    $
    612.4
    
    
    $
    41.7
    
    
    $
    3,359.8
 20. COST OF GOODS SOLD
  Provision for Plant Shutdowns  Phosphate Segment  2006




---



##### 



96
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
 20. Cost Of Goods Sold continued
 21. SELLING AND ADMINISTRATIVE
  22. PROVINCIAL MINING AND OTHER TAXES
  2007
    
    
    2006
    
    
    2005Potash Production Tax
    
    $
    84.2
    
    
    $
    28.6
    
    
    $
    94.8Saskatchewan corporate
capital taxes and other
    
    
    51.2
    
    
    
    37.9
    
    
    
    42.4$
    135.4
    
    
    $
    66.5
    
    
    $
    137.2
 23. OTHER INCOME
 2007
    
    
    2006
    
    
    2005Share of earnings of equity investees
    
    $
    76.2
    
    
    $
    54.4
    
    
    $
    52.1Dividend income
    
    
    58.1
    
    
    
    21.1
    
    
    
    9.2Other
    
    
    17.7
    
    
    
    18.5
    
    
    
    0.5Provision for auction rate securities (Note 8)
    
    
    (26.5
    )
    
    
    
    
    
    
    $
    125.5
    
    
    $
    94.0
    
    
    $
    61.8
   24. INTEREST EXPENSE
 2007
    
    
    2006
    
    
    2005Interest expense onShort-term debt
    
    $
    8.7
    
    
    $
    34.5
    
    
    $
    7.0Long-term debt
    
    
    111.6
    
    
    
    97.6
    
    
    
    94.1Interest capitalized to property, plant and equipment
    
    
    (21.8
    )
    
    
    (19.1
    )
    
    
    (5.7
    )Interest income
    
    
    (29.8
    )
    
    
    (27.4
    )
    
    
    (13.1
    )$
    68.7
    
    
    $
    85.6
    
    
    $
    82.3
 25. INCOME TAXES




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    97
 25. Income Taxes continued
 2007
    
    
    2006
    
    
    2005Income before income taxesCanada
    
    $
    495.5
    
    
    $
    338.2
    
    
    $
    381.5United States
    
    
    634.1
    
    
    
    219.3
    
    
    
    170.0Trinidad
    
    
    268.6
    
    
    
    148.5
    
    
    
    175.6Other
    
    
    121.6
    
    
    
    83.9
    
    
    
    83.2$
    1,519.8
    
    
    $
    789.9
    
    
    $
    810.3Federal and provincial statutory tax rates
    
    
    35.55%
    
    
    
    39.25%
    
    
    
    42.52%Tax at statutory rates
    
    $
    540.3
    
    
    $
    310.0
    
    
    $
    344.5Adjusted for the effect of:Recoveries upon Canadian tax rate reductions
    
    
    (40.1
    )
    
    
    (44.8
    )
    
    
    Refunds upon deduction of Saskatchewan resource surcharge
    
    
    
    
    
    
    (34.1
    )
    
    
    Net non-deductible provincial taxes and royalties and resource allowances
    
    
    
    
    
    
    (6.3
    )
    
    
    (1.2
    )Production-related deductions
    
    
    (17.6
    )
    
    
    
    
    
    
    Stock-based compensation deduction
    
    
    (0.1
    )
    
    
    (5.8
    )
    
    
    (13.2
    )Additional tax deductions
    
    
    (15.4
    )
    
    
    (15.5
    )
    
    
    (14.8
    )Difference between Canadian rate and rates applicable to subsidiaries in other countries
    
    
    (45.9
    )
    
    
    (43.8
    )
    
    
    (48.9
    )Other
    
    
    (5.0
    )
    
    
    (1.6
    )
    
    
    1.0Income tax expense
    
    $
    416.2
    
    
    $
    158.1
    
    
    $
    267.4
  2007
    
    
    2006
    
    
    2005CanadaCurrent
    
    $
    154.1
    
    
    $
    51.8
    
    
    $
    170.5Future
    
    
    (17.6
    )
    
    
    (4.3
    )
    
    
    12.6United States  FederalCurrent
    
    
    32.4
    
    
    
    2.3
    
    
    
    0.8Future
    
    
    137.6
    
    
    
    43.7
    
    
    
    30.8United States  StateCurrent
    
    
    12.8
    
    
    
    2.6
    
    
    
    2.2Future
    
    
    0.7
    
    
    
    5.7
    
    
    
    (12.8
    )Trinidad and otherCurrent
    
    
    97.3
    
    
    
    51.4
    
    
    
    53.8Future
    
    
    (1.1
    )
    
    
    4.9
    
    
    
    9.5Income tax expense
    
    $
    416.2
    
    
    $
    158.1
    
    
    $
    267.4
  2007
    
    
    2006Future income tax assets:Loss and credit carryforwards
    
    $
    119.4
    
    
    $
    189.9Accrued pension and other post-retirement benefits
    
    
    51.5
    
    
    
    44.5Other
    
    
    54.7
    
    
    
    56.1Total future income tax assets
    
    
    225.6
    
    
    
    290.5Future income tax liabilities:Basis difference in fixed assets
    
    
    731.3
    
    
    
    715.2Basis difference in long-term debt
    
    
    75.6
    
    
    
    52.3Basis difference in investments
    
    
    213.8
    
    
    
    10.3Basis difference in cash flow hedges
    
    
    50.3
    
    
    
    Other
    
    
    142.7
    
    
    
    144.8Total future income tax liabilities
    
    
    1,213.7
    
    
    
    922.6Net future income tax liability
    
    $
    988.1
    
    
    $
    632.1




---



##### 



98
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
 25. Income Taxes continued
   26. NET INCOME PER SHARE
 2007
    
    
    2006
    
    
    2005Basic net income per share1Net income available to common shareholders
    
    $
    1,103.6
    
    
    $
    631.8
    
    
    $
    542.9Weighted average number of common shares
    
    315,641,000
    
    
    311,880,000
    
    
    325,704,000Basic net income per share
    
    $
    3.50
    
    
    $
    2.03
    
    
    $
    1.67Diluted net income per share1Net income available to common shareholders
    
    $
    1,103.6
    
    
    $
    631.8
    
    
    $
    542.9Weighted average number of common shares
    

    315,641,000
    
    

    311,880,000
    
    

    325,704,000Dilutive effect of stock options
    

    8,667,000
    
    

    6,809,000
    
    

    7,530,000Weighted average number of diluted common shares
    

    324,308,000
    
    

    318,689,000
    
    

    333,234,000Diluted net income per share
    
    $
    3.40
    
    
    $
    1.98
    
    
    $
    1.63
 
 1 Net income per share calculations are based on full dollar and share amounts.  
 27. STOCK-BASED COMPENSATION
  Stock Option Plans




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements

    99
 27. Stock-Based Compensation continued
    Number of Shares Subject to Option
 Performance Option Plans
    
    
    Officers, Employees and Directors Plans2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Outstanding, beginning of year
    
    
    6,199,800
    
    
    
    3,558,000
    
    
    
    
    
    
    
    8,105,844
    
    
    
    11,687,268
    
    
    
    19,202,190Granted
    
    
    1,730,550
    
    
    
    2,684,700
    
    
    
    3,565,500
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,995,460
    )
    
    
    (3,581,424
    )
    
    
    (7,378,782
    )Forfeited
    
    
    (33,750
    )
    
    
    (42,900
    )
    
    
    (7,500
    )
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,140
    )Outstanding, end of year
    
    
    7,896,600
    
    
    
    6,199,800
    
    
    
    3,558,000
    
    
    
    6,110,384
    
    
    
    8,105,844
    
    
    
    11,687,268
 Weighted Average Exercise Price
 Performance Option Plans
    
    
    Officers, Employees and Directors Plans2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Outstanding, beginning of year
    
    $
    31.38
    
    
    $
    30.03
    
    
    $
    
    
    
    $
    12.68
    
    
    $
    12.80
    
    
    $
    12.71Granted
    
    
    62.75
    
    
    
    33.67
    
    
    
    29.42
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.31
    
    
    
    13.31
    
    
    
    12.71Forfeited
    
    
    39.26
    
    
    
    30.30
    
    
    
    30.13
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.68Outstanding, end of year
    
    $
    40.08
    
    
    $
    31.38
    
    
    $
    30.03
    
    
    $
    13.48
    
    
    $
    12.68
    
    
    $
    12.80
 
  Options Outstanding
    
    Options ExercisableRange of
    
    
    
    
    
    Weighted Average
    
    Weighted Average
    
    
    
    
    
    Weighted AverageExercise Prices
    
    Number
    
    Remaining Life in Years
    
    Exercise Price
    
    Number
    
    Exercise PriceOfficers and Employees and Directors Plans$7.00 to $10.55
    
    
    496,300
    
    
    
    3
    
    
    $
    10.03
    
    
    
    496,300
    
    
    $
    10.03$10.56 to $14.10
    
    
    3,403,958
    
    
    
    5
    
    
    $
    11.67
    
    
    
    3,403,958
    
    
    $
    11.67$14.11 to $17.65
    
    
    2,210,126
    
    
    
    4
    
    
    $
    17.04
    
    
    
    2,210,126
    
    
    $
    17.046,110,384
    
    
    
    4
    
    
    $
    13.48
    
    
    
    6,110,384
    
    
    $
    13.48Performance Option Plans$29.00 to $39.00
    
    
    6,174,300
    
    
    
    8
    
    
    $
    33.14
    
    
    
    
    
    
    
    $62.00 to $72.00
    
    
    1,722,300
    
    
    
    9
    
    
    $
    64.93
    
    
    
    
    
    
    
    7,896,600
    
    
    
    8
    
    
    $
    40.08
    
    
    
    
    
    
    
    14,006,984
    
    
    
    6
    
    
    $
    28.47
    
    
    
    6,110,384
    
    
    $
    13.48




---



##### 



100
    
    Notes to the PotashCorp 2007 Consolidated Financial Statements
 27. Stock-Based Compensation continued
  Year of Grant2007
    
    
    2006
    
    
    2005
    
    
    2003Expected dividend
    
    
    $0.40
    
    
    
    $0.20
    
    
    
    $0.20
    
    
    
    $0.17Expected volatility
    
    
    29%
    
    
    
    30%
    
    
    
    28%
    
    
    
    27%Risk-free interest rate
    
    
    4.48%
    
    
    
    4.90%
    
    
    
    3.86%
    
    
    
    4.06%Expected life of options in years
    
    
    6.4
    
    
    
    6.5
    
    
    
    6.5
    
    
    
    8
   Number of
    
    Weighted AverageShares Subject
    
    Grant-Dateto Option
    
    Fair ValueNon-vested at January 1, 2007
    
    
    6,199,800
    
    
    $
    11.19Granted
    
    
    1,730,550
    
    
    
    22.68Vested
    
    
    
    
    
    
    Forfeited
    
    
    (33,750
    )
    
    
    14.12Non-vested at December 31, 2007
    
    
    7,896,600
    
    
    $
    13.70
   Deferred Share Unit and Other Plans
 28. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    

101
 28. Financial Instruments and Risk Management continued
 Fair Value
  29. CONTINGENCIES
 Canpotex
  Mining Risk
  Investment in APC
 Legal and Other Matters
  
    
    In 1994, PCS Joint Venture responded to information requests from the US Environmental
Protection Agency (USEPA) and the Georgia Department of Natural Resources, Environmental
Protection Division (GEPD) regarding conditions at its Moultrie, Georgia location. PCS
Joint Venture believes that the lead-contaminated soil and groundwater found at the site are
attributable to former operations at the site prior to PCS Joint Ventures ownership. In
2005, the GEPD approved a Corrective Action Plan to address environmental conditions at this
location. As anticipated, the approved remedy requires some excavation and off-site disposal
of impacted soil and installation of a groundwater recovery and treatment system. PCS Joint
Venture began the remediation in November 2005 and completed soil excavation in March 2006,
and it is proceeding consistent with the projected schedule and budget.
 
    
    In 1998, the company, along with other parties, was notified by the USEPA of potential
liability under the US federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA) with respect to certain soil and groundwater conditions at a
PCS Joint Venture blending facility in Lakeland, Florida and certain adjoining property. In
1999, PCS Joint Venture signed an Administrative Order on Consent with the USEPA pursuant to
which PCS Joint Venture agreed to conduct a Remedial Investigation and Feasibility Study
(RI/FS) of these conditions. PCS Joint Venture and
another party shared the cost of the RI/FS, which is now complete. A Record of Decision (ROD)
based upon the RI/FS was issued on September 27, 2007. The ROD provides for a remedy that
requires excavation of impacted soils and interim treatment of groundwater. The total remedy cost
is estimated in the ROD to be $8.5. Soil excavation activities are expected to begin by the end
of 2008. The USEPA has issued letters to PCS Joint Venture and five other alleged potentially
responsible parties and negotiations are underway regarding the appropriate share of the cost of
the remedy that should be borne by each party. Although PCS Joint Venture sold the Lakeland
property in July 2006, it has retained the above-described remediation responsibilities and has
indemnified the third-party purchaser for the costs of remediation and certain related claims.
 
    
    The USEPA has identified PCS Nitrogen, Inc. (PCS Nitrogen) as a potentially responsible
party with respect to a former fertilizer blending operation in Charleston, South Carolina,
known as the Planters Property or Columbia Nitrogen site, formerly owned by a company from
which PCS Nitrogen acquired certain other assets. The USEPA has requested reimbursement of
$3.0 of previously




---



##### 



102
    

Notes to the PotashCorp 2007 Consolidated Financial Statements
 29. Contingencies continued
 
    
    PCS Phosphate, along with several other entities, has received notice from parties to an
Administrative Settlement Agreement (Settling Parties) with USEPA of alleged contribution
liability under CERCLA for costs incurred and to be incurred addressing PCB soil
contamination at the Ward Superfund Site in Raleigh, North Carolina (Site). PCS Phosphate
has agreed to participate, on a non-joint and several basis, with the Settling Parties in the
performance of the removal action and the payment of other costs associated with the Site,
including reimbursement of USEPAs past costs. The cost of performing the removal at the Site
is estimated at $30.0. The removal activities commenced at the Site in August 2007. The
company anticipates recovering some portion of its expenditures in this matter from other
liable parties. USEPA is evaluating response actions for PCB-impacted sediments downstream of
the Site but has not issued a final remedy for those sediments.
 
    
    The USEPA announced an initiative to evaluate implementation within the phosphate industry
of a particular exemption for mineral processing wastes under the hazardous waste program. In
connection with this industry-wide initiative, the USEPA conducted hazardous waste compliance
evaluation inspections at numerous phosphate operations, including the companys plants in
Aurora,
 North Carolina, Geismar, Louisiana and White Springs, Florida. The USEPA has notified the
company of various alleged violations of the Resource Conservation and Recovery Act at the
companys Aurora and White Springs plants. The company and other industry members have met with
representatives of the US Department of Justice, USEPA and various state environmental agencies
regarding potential resolution of these matters. During these meetings, the company was informed
that the USEPA also believes the Geismar plant is in violation of these requirements. The company
is uncertain if any resolution will be possible without litigation, or, if litigation occurs,
what the outcome would be. At this time, the company is unable to evaluate the extent of any
exposure that it may have in these matters.
 
    
    Pursuant to the 1996 Corrective Action Consent Order (the Order) executed between PCS
Nitrogen Fertilizer, LP, formerly known as Arcadian Fertilizer, LP (PCS Nitrogen
Fertilizer) and GEPD in conjunction with PCS Nitrogen Fertilizers purchase of certain real
property from the entity from which PCS Nitrogen Fertilizer previously leased such property,
PCS Nitrogen Fertilizer agreed to perform certain activities including a facility investigation and, if necessary, a corrective action. In accordance with the
Order, PCS Nitrogen Fertilizer has performed an investigation of environmental site
conditions and has documented its findings in several successive
facility investigation reports submitted to
GEPD. Based on these findings and on the requirements of the Order, PCS Nitrogen Fertilizer
is implementing a pilot study to evaluate the viability of in-situ bioremediation of
groundwater
at the site. In the event the technology proves successful and full-scale implementation is
warranted, upon GEPD approval, a full-scale bioremediation remedy will be implemented. If the
pilot study proves unsuccessful or if GEPD does not approve this remedial strategy, other, more
costly remediation alternatives may need to be evaluated and implemented.




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    

103
 29. Contingencies continued
 30. GUARANTEES
 31. RELATED PARTY TRANSACTIONS




---



##### 



104
    

Notes to the PotashCorp 2007 Consolidated Financial Statements
 32. COMPARATIVE FIGURES
  33.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
  (a) Long-term investments:
  (b) Property, plant and equipment and goodwill:
 (c) Depreciation and amortization:
 (d) Exploration costs:
 (e) Pre-operating costs:
 (f) Pension and other post-retirement benefits:
  (g) Foreign currency translation adjustment:
 (h) Derivative instruments and hedging activities:




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    
    105
 33. Reconciliation of Canadian and United States Generally Accepted Accounting Principles continued
 (i) Comprehensive income:
 (j) Stock-based compensation:
 (k) Stripping costs:
 (l) Income taxes related to the above adjustments:
 (m) Income tax consequences of stock-based employee compensation:
 (n) Income taxes related to uncertain income tax positions:
 (o) Cash flow statements:




---



##### 



106
    

Notes to the PotashCorp 2007 Consolidated Financial Statements
 33. Reconciliation of Canadian and United States Generally Accepted Accounting Principles continued
  2007
    
    
    2006
    
    
    2005Net income as reported  Canadian GAAP
    
    $
    1,103.6
    
    
    $
    631.8
    
    
    $
    542.9Items increasing (decreasing) reported net incomeCash flow hedge ineffectiveness (h)
    
    
    
    
    
    
    (4.5
    )
    
    
    2.3Depreciation and amortization (c)
    
    
    8.5
    
    
    
    8.4
    
    
    
    8.4Stock-based compensation (j)
    
    
    (1.7
    )
    
    
    1.3
    
    
    
    Stripping costs (k)
    
    
    (10.9
    )
    
    
    2.6
    
    
    
    Exploration costs (d)
    
    
    
    
    
    
    
    
    
    
    (6.4
    )Share of earnings of equity investees (a)
    
    
    (1.9
    )
    
    
    0.5
    
    
    
    3.7Pension and other post-retirement benefits (f)
    
    
    
    
    
    
    2.0
    
    
    
    2.4Deferred income taxes relating to the above adjustments (l)
    
    
    (1.9
    )
    
    
    (3.0
    )
    
    
    (3.4
    )Income taxes related to US GAAP effective income tax rate (l, n)
    
    
    (30.3
    )
    
    
    
    
    
    
    Income taxes related to stock-based compensation (m)
    
    
    (18.4
    )
    
    
    (13.3
    )
    
    
    (17.2
    )Income taxes related to uncertain income tax positions (n)
    
    
    14.5
    
    
    
    
    
    
    
    Net income  US GAAP
    
    $
    1,061.5
    
    
    $
    625.8
    
    
    $
    532.7Basic weighted average shares outstanding  US GAAP
    

    315,641,000
    
    

    311,880,000
    
    

    325,705,000Diluted weighted average shares outstanding  US GAAP
    

    324,292,000
    
    

    318,669,000
    
    

    333,235,000Basic net income per share  US GAAP
    
    $
    3.36
    
    
    $
    2.01
    
    
    $
    1.64Diluted net income per share  US GAAP
    
    $
    3.27
    
    
    $
    1.96
    
    
    $
    1.60Total assets as reported  Canadian GAAP
    
    $
    9,716.6
    
    
    $
    6,217.0Items increasing (decreasing) reported total assetsInventory and other current assets (h)
    
    
    
    
    
    
    8.0Available-for-sale securities (unrealized holding gain) (a)
    
    
    
    
    
    
    889.9Fair value of derivative instruments (h)
    
    
    
    
    
    
    120.3Property, plant and equipment (b)
    
    
    (101.2
    )
    
    
    (109.7
    )Exploration costs (d)
    
    
    (6.4
    )
    
    
    (6.4
    )Stripping costs (k)
    
    
    (32.7
    )
    
    
    (21.8
    )Deferred debt costs
    
    
    
    
    
    
    (23.9
    )Pension and other post-retirement benefits (f)
    
    
    (66.7
    )
    
    
    6.7Investment in equity investees (a)
    
    
    2.3
    
    
    
    5.5Income tax asset related to uncertain income tax positions (n)
    
    
    18.4
    
    
    
    Goodwill (b)
    
    
    (46.7
    )
    
    
    (46.7
    )Total assets  US GAAP
    
    $
    9,483.6
    
    
    $
    7,038.9Total shareholders equity as reported  Canadian GAAP
    
    $
    6,018.7
    
    
    $
    2,780.3
    
    
    $
    2,132.5Items increasing (decreasing) reported shareholders equityAccumulated other comprehensive income, net of related income
taxes, consisting of:Unrealized gains and losses on available-for-sale securities (a)
    
    
    
    
    
    
    792.0
    
    
    
    236.3Net gains on derivatives designated as cash flow hedges (h)
    
    
    
    
    
    
    79.4
    
    
    
    182.4Cumulative effect adjustment in respect of uncertain income tax 
positions (n)
    
    
    (1.2
    )
    
    
    
    
    
    
    Additional minimum pension liability (f)
    
    
    
    
    
    
    
    
    
    
    (55.4
    )Pension and other post-retirement benefits (f)
    
    
    (85.6
    )
    
    
    (117.9
    )
    
    
    Share of accumulated other comprehensive income of equity
investees (a)
    
    
    
    
    
    
    0.9
    
    
    
    0.8Foreign currency translation adjustment (g)
    
    
    (20.9
    )
    
    
    (20.9
    )
    
    
    (20.9
    )Foreign currency translation adjustment (g)
    
    
    20.9
    
    
    
    20.9
    
    
    
    20.9Provision for asset impairment (b)
    
    
    (218.0
    )
    
    
    (218.0
    )
    
    
    (218.0
    )Depreciation and amortization (c)
    
    
    70.1
    
    
    
    61.6
    
    
    
    53.2Exploration costs (d)
    
    
    (6.4
    )
    
    
    (6.4
    )
    
    
    (6.4
    )Stripping costs (k)
    
    
    (32.7
    )
    
    
    2.6
    
    
    
    Cash flow hedge ineffectiveness (h)
    
    
    
    
    
    
    0.4
    
    
    
    4.9Pension and other post-retirement benefits (f)
    
    
    16.1
    
    
    
    16.1
    
    
    
    14.1Share of other comprehensive income of equity investees (a)
    
    
    2.3
    
    
    
    4.2
    
    
    
    3.7Deferred income taxes relating to the above adjustments (l)
    
    
    30.4
    
    
    
    24.0
    
    
    
    27.0Income taxes related to US GAAP effective income tax rate (l, n)
    
    
    (30.3
    )
    
    
    
    
    
    
    Income taxes related to uncertain income tax positions (n)
    
    
    14.5
    
    
    
    
    
    
    
    Cumulative effect adjustment to retained earnings in respect of
stripping costs (k)
    
    
    
    
    
    
    (16.3
    )
    
    
    Cumulative effect adjustment to retained earnings in respect of
uncertain income tax positions (n)
    
    
    85.7
    
    
    
    
    
    
    
    Shareholders equity  US GAAP
    
    $
    5,863.6
    
    
    $
    3,402.9
    
    
    $
    2,375.1




---



##### 



Notes to the PotashCorp 2007 Consolidated Financial Statements
    

107
 33. Reconciliation of Canadian and United States Generally Accepted Accounting Principles continued
 Supplemental US GAAP Disclosure
 Recent
Accounting Pronouncements
 Uncertainty in Income Taxes
    Balance at January 1, 2007
    
    $
    24.2Additions based on tax positions related
to the current year
    
    
    2.8Additions for tax positions of prior years
    
    
    12.3Reductions for tax positions of prior years
    
    
    (18.0
    )Settlements
    
    
    (9.7
    )Balance at December 31, 2007
    
    $
    11.6
 YearsCanada
    
    1997-presentUS
    
    2001-presentTrinidad
    
    1999-presentBarbados
    
    1999-present
 Definition of Settlement Under FIN No. 48
  Planned Major Maintenance Activities
  Framework for Fair Value Measurement
  Fair Value Option for Financial Assets and Financial Liabilities




---



##### 



108
    

Notes
to the PotashCorp 2007 Consolidated Financial Statements
 33. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles continued
 Business Combinations
  Noncontrolling Interests in Consolidated Financial Statements
  Deferred Income Taxes
  Stock-Based Compensation
 Derivative Instruments and Hedging Activities
 
 Pension and Other Post-Retirement Benefits
  Related Party Transactions
  Supplemental Schedules




---



##### 



Notes
to the PotashCorp 2007 Consolidated Financial Statements


109
 33. Reconciliation of Canadian and United States Generally Accepted Accounting Principles continued
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED FINANCIAL POSITION
 As at December 312007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    719.5
    
    
    $
    325.7Accounts receivable
    
    
    596.2
    
    
    
    442.3Inventories
    
    
    428.8
    
    
    
    494.9Prepaid expenses and other current assets
    
    
    36.7
    
    
    
    40.9Current portion of derivative instrument assets
    
    
    30.8
    
    
    
    50.91,812.0
    
    
    
    1,354.7Derivative instrument assets
    
    
    104.2
    
    
    
    69.4Property, plant and equipment
    
    
    3,746.4
    
    
    
    3,409.8Investments
    
    
    3,583.8
    
    
    
    2,044.3Other assets
    
    
    144.0
    
    
    
    81.1Income taxes on uncertain income tax positions
    
    
    18.4
    
    
    
    Intangible assets
    
    
    24.5
    
    
    
    29.3Goodwill
    
    
    50.3
    
    
    
    50.3$
    9,483.6
    
    
    $
    7,038.9LiabilitiesCurrent liabilitiesShort-term debt
    
    $
    90.0
    
    
    $
    157.9Accounts payable and accrued charges
    
    
    851.5
    
    
    
    573.5Current portion of long-term debt
    
    
    0.2
    
    
    
    400.4941.7
    
    
    
    1,131.8Long-term debt
    
    
    1,339.4
    
    
    
    1,339.8Deferred income tax liability
    
    
    903.0
    
    
    
    668.5Income taxes on uncertain income tax positions
    
    
    38.1
    
    
    
    Accrued pension and other post-retirement benefits
    
    
    274.1
    
    
    
    378.1Accrued environmental costs and asset retirement obligations
    
    
    121.0
    
    
    
    110.3Other non-current liabilities and deferred credits
    
    
    2.7
    
    
    
    7.53,620.0
    
    
    
    3,636.0Shareholders EquityShare capital
    
    
    1,461.3
    
    
    
    1,431.6Additional paid-in capital
    
    
    169.8
    
    
    
    113.1Accumulated other comprehensive income
    
    
    2,071.2
    
    
    
    733.5Retained earnings
    
    
    2,161.3
    
    
    
    1,124.75,863.6
    
    
    
    3,402.9$
    9,483.6
    
    
    $
    7,038.9
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME
 For the Years Ended December 312007
    
    
    2006
    
    
    2005Accumulated other comprehensive income, beginning of year
    
    $
    733.5
    
    
    $
    343.2
    
    
    $
    96.8Other comprehensive income, net of related income taxes
    
    
    1,338.9
    
    
    
    461.1
    
    
    
    246.4Cumulative effect adjustment in respect of uncertain income tax positions
    
    
    (1.2
    )
    
    
    
    
    
    
    Cumulative effect adjustment related to pension and other post-retirement benefits
    
    
    
    
    
    
    (70.8
    )
    
    
    Accumulated other comprehensive income, end of year
    
    $
    2,071.2
    
    
    $
    733.5
    
    
    $
    343.2




---



##### 



110
    

Notes
to the PotashCorp 2007 Consolidated Financial Statements
 33. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles continued
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (continued)
  2007
    
    
    2006
    
    
    2005Net unrealized holding gains on available-for-sale securities
    
    $
    2,098.7
    
    
    $
    792.0
    
    
    $
    236.3Net unrealized gains on derivatives designated as cash flow hedges
    
    
    73.5
    
    
    
    79.4
    
    
    
    182.4Additional minimum pension liability
    
    
    
    
    
    
    
    
    
    
    (55.4
    )Pension and other post-retirement benefits1
    
    
    (85.6
    )
    
    
    (117.9
    )
    
    
    Share of other comprehensive income of equity investees
    
    
    
    
    
    
    0.9
    
    
    
    0.8Unrealized foreign exchange gains on self-sustaining foreign operations
    
    
    6.7
    
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    (20.9
    )
    
    
    (20.9
    )
    
    
    (20.9
    )Cumulative effect adjustment in respect of uncertain income tax positions
    
    
    (1.2
    )
    
    
    
    
    
    
    Accumulated other comprehensive income, end of year
    
    $
    2,071.2
    
    
    $
    733.5
    
    
    $
    343.2
 1
    2007 comprised of unamortized net actuarial loss of $(91.0), unamortized prior service
costs of $8.7 and unamortized transitional obligation of $(3.3). 2006 comprised of unamortized
net actuarial loss of $(122.9), unamortized prior service costs of $9.0 and unamortized
transitional obligation of $(4.0).
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS
 For the Years Ended December 312007
    
    
    2006
    
    
    2005Sales
    
    $
    5,234.2
    
    
    $
    3,766.7
    
    
    $
    3,847.2Less: Freight
    
    
    346.1
    
    
    
    255.8
    
    
    
    249.7Transportation and distribution
    
    
    124.1
    
    
    
    134.1
    
    
    
    121.9Cost of goods sold
    
    
    2,885.9
    
    
    
    2,365.4
    
    
    
    2,337.5Gross Margin
    
    
    1,878.1
    
    
    
    1,011.4
    
    
    
    1,138.1Selling and administrative
    
    
    213.6
    
    
    
    158.0
    
    
    
    144.5Provincial mining and other taxes
    
    
    135.4
    
    
    
    66.5
    
    
    
    137.2Foreign exchange loss (gain)
    
    
    70.2
    
    
    
    (4.4
    )
    
    
    12.5Share of earnings of equity investees
    
    
    (74.3
    )
    
    
    (54.9
    )
    
    
    (55.8
    )Other income
    
    
    (49.3
    )
    
    
    (39.6
    )
    
    
    (3.3
    )295.6
    
    
    
    125.6
    
    
    
    235.1Operating Income
    
    
    1,582.5
    
    
    
    885.8
    
    
    
    903.0Interest Expense
    
    
    68.7
    
    
    
    85.6
    
    
    
    82.3Income Before Income Taxes
    
    
    1,513.8
    
    
    
    800.2
    
    
    
    820.7Income Taxes
    
    
    452.3
    
    
    
    174.4
    
    
    
    288.0Net Income
    
    
    1,061.5
    
    
    
    625.8
    
    
    
    532.7Retained Earnings, Beginning of Year
    
    
    1,124.7
    
    
    
    577.5
    
    
    
    572.3Cumulative Effect Adjustment in Respect of Uncertain Income Tax Positions
    
    
    85.7
    
    
    
    
    
    
    
    Cumulative Effect Adjustment in Respect of Stripping Costs
    
    
    
    
    
    
    (16.3
    )
    
    
    Repurchase of Common Shares
    
    
    
    
    
    
    
    
    
    
    (462.5
    )Dividends
    
    
    (110.6
    )
    
    
    (62.3
    )
    
    
    (65.0
    )Retained Earnings, End of Year
    
    $
    2,161.3
    
    
    $
    1,124.7
    
    
    $
    577.5Net Income per Share  Basic
    
    $
    3.36
    
    
    $
    2.01
    
    
    $
    1.64Net Income per Share  Diluted
    
    $
    3.27
    
    
    $
    1.96
    
    
    $
    1.60Dividends per Share
    
    $
    0.35
    
    
    $
    0.20
    
    
    $
    0.20
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME
 For the Years Ended December 312007
    
    
    2006
    
    
    2005Net
Income
    
    $
    1,061.5
    
    
    $
    625.8
    
    
    $
    532.7Other
comprehensive incomeNet increase in unrealized gains on available-for-sale securities
    
    
    1,394.1
    
    
    
    534.7
    
    
    
    193.5Net gains (losses) on derivatives designated as cash flow hedges
    
    
    49.4
    
    
    
    (68.2
    )
    
    
    255.0Reclassification to income of net gains on cash flow hedges
    
    
    (57.8
    )
    
    
    (79.7
    )
    
    
    (53.5
    )Pension and other post-retirement benefits1
    
    
    56.4
    
    
    
    
    
    
    
    Unrealized foreign exchange gains on translation of self-sustaining foreign operations
    
    
    6.7
    
    
    
    
    
    
    
    Adjustment to additional minimum pension liability
    
    
    
    
    
    
    11.7
    
    
    
    (28.4
    )Share of other comprehensive income of equity investees
    
    
    (1.3
    )
    
    
    0.2
    
    
    
    1.1Deferred income taxes related to other comprehensive income
    
    
    (108.6
    )
    
    
    62.4
    
    
    
    (121.3
    )Other
Comprehensive Income
    
    
    1,338.9
    
    
    
    461.1
    
    
    
    246.4Comprehensive
Income
    
    $
    2,400.4
    
    
    $
    1,086.9
    
    
    $
    779.1
 1 2007
    
    comprised of amortization of net actuarial loss of $56.6, amortization of prior service costs of $(1.4), and amortization of transitional obligation of $1.2.




---



##### 



Notes
to the PotashCorp 2007 Consolidated Financial Statements


111
 33. Reconciliation of Canadian and United States Generally Accepted Accounting Principles continued
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW
 For the Years Ended December 312007
    
    
    2006
    
    
    2005Operating ActivitiesNet income
    
    $
    1,061.5
    
    
    $
    625.8
    
    
    $
    532.7Adjustments to reconcile net income to cash provided by operating activitiesDepreciation and amortization
    
    
    282.8
    
    
    
    234.0
    
    
    
    234.0Stock-based compensation
    
    
    40.3
    
    
    
    28.5
    
    
    
    27.5Loss (gain) on disposal of property, plant and equipment and long-term investments
    
    
    7.9
    
    
    
    (8.6
    )
    
    
    11.8Provision for auction rate securities
    
    
    26.5
    
    
    
    
    
    
    
    Provision for plant shutdowns  phosphate segment
    
    
    
    
    
    
    6.3
    
    
    
    Foreign exchange on deferred income tax
    
    
    52.4
    
    
    
    0.5
    
    
    
    8.9Provision for deferred income tax
    
    
    137.3
    
    
    
    52.7
    
    
    
    43.5Undistributed earnings of equity investees
    
    
    (33.7
    )
    
    
    (25.0
    )
    
    
    (37.2
    )Unrealized gain on derivative instruments
    
    
    (21.1
    )
    
    
    
    
    
    
    Other long-term liabilities
    
    
    (57.9
    )
    
    
    13.4
    
    
    
    20.2Changes in non-cash operating working capitalAccounts receivable
    
    
    (154.6
    )
    
    
    11.0
    
    
    
    (107.6
    )Inventories
    
    
    59.6
    
    
    
    15.8
    
    
    
    (122.2
    )Prepaid expenses and other current assets
    
    
    7.0
    
    
    
    (1.8
    )
    
    
    (8.2
    )Accounts payable and accrued charges
    
    
    250.9
    
    
    
    (269.1
    )
    
    
    238.1Cash provided by operating activities
    
    
    1,658.9
    
    
    
    683.5
    
    
    
    841.5Investing ActivitiesAdditions to property, plant and equipment
    
    
    (595.6
    )
    
    
    (508.6
    )
    
    
    (376.3
    )Purchase of long-term investments
    
    
    (30.7
    )
    
    
    (352.5
    )
    
    
    (190.9
    )Purchase of investments in auction rate securities
    
    
    (132.5
    )
    
    
    
    
    
    
    Proceeds from disposal of property, plant and equipment and long-term investments
    
    
    4.5
    
    
    
    22.0
    
    
    
    12.4Other assets and intangible assets
    
    
    7.8
    
    
    
    (0.6
    )
    
    
    5.9Cash used in investing activities
    
    
    (746.5
    )
    
    
    (839.7
    )
    
    
    (548.9
    )Financing ActivitiesProceeds from long-term debt obligations
    
    
    1.5
    
    
    
    483.9
    
    
    
    Repayment and issue costs of long-term debt obligations
    
    
    (403.6
    )
    
    
    (1.3
    )
    
    
    (10.1
    )(Proceeds from) repayment of short-term debt obligations
    
    
    (67.9
    )
    
    
    (94.3
    )
    
    
    158.7Dividends
    
    
    (93.6
    )
    
    
    (60.9
    )
    
    
    (65.4
    )Repurchase of common shares
    
    
    
    
    
    
    
    
    
    
    (851.9
    )Issuance of common shares
    
    
    26.6
    
    
    
    47.3
    
    
    
    93.9Income taxes related to stock-based compensation
    
    
    18.4
    
    
    
    13.3
    
    
    
    17.2Cash (used in) provided by financing activities
    
    
    (518.6
    )
    
    
    388.0
    
    
    
    (657.6
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    393.8
    
    
    
    231.8
    
    
    
    (365.0
    )Cash and Cash Equivalents, Beginning of Year
    
    
    325.7
    
    
    
    93.9
    
    
    
    458.9Cash and Cash Equivalents, End of Year
    
    $
    719.5
    
    
    $
    325.7
    
    
    $
    93.9Supplemental cash flow disclosureIncome taxes paid (o)
    
    $
    221.0
    
    
    $
    296.8
    
    
    $
    141.6
 34. SUBSEQUENT EVENTS




---



##### 



112
    
    S H A R E H O L D E R   I N F O R M AT I O NPOTASHCORP 2007 FINANCIAL REVIEW


Investor Inquiries
 
 Dividends
   Ownership
  Corporate Offices
 Canada:
 US:
 Common Share Prices and Volumes
  Toronto Stock Exchange1
    
    New York Stock ExchangeHigh
    
    Low
    
    Volume
    
    High
    
    Low
    
    Volume2007First Quarter
    
    
    65.31
    
    
    
    51.92
    
    
    
    51,599,528
    
    
    
    56.35
    
    
    
    44.05
    
    
    
    221,025,369Second Quarter
    
    
    86.21
    
    
    
    61.02
    
    
    
    51,480,129
    
    
    
    80.85
    
    
    
    52.82
    
    
    
    220,781,704Third Quarter
    
    
    108.92
    
    
    
    76.96
    
    
    
    65,980,291
    
    
    
    109.40
    
    
    
    71.50
    
    
    
    189,289,076Fourth Quarter
    
    
    148.89
    
    
    
    94.30
    
    
    
    67,978,612
    
    
    
    151.90
    
    
    
    97.36
    
    
    
    239,545,310Year 2007
    
    
    148.89
    
    
    
    51.92
    
    
    
    237,038,560
    
    
    
    151.90
    
    
    
    44.05
    
    
    
    870,641,4592006First Quarter
    
    
    37.96
    
    
    
    30.50
    
    
    
    63,024,657
    
    
    
    33.08
    
    
    
    26.05
    
    
    
    165,652,500Second Quarter
    
    
    39.00
    
    
    
    28.93
    
    
    
    56,060,451
    
    
    
    35.47
    
    
    
    26.28
    
    
    
    162,390,900Third Quarter
    
    
    39.49
    
    
    
    30.67
    
    
    
    42,424,140
    
    
    
    35.49
    
    
    
    27.34
    
    
    
    123,589,800Fourth Quarter
    
    
    56.96
    
    
    
    37.75
    
    
    
    58,463,577
    
    
    
    49.06
    
    
    
    33.83
    
    
    
    185,087,100Year 2006
    
    
    56.96
    
    
    
    28.93
    
    
    
    219,972,825
    
    
    
    49.06
    
    
    
    26.05
    
    
    
    636,720,3002005First Quarter
    
    
    37.97
    
    
    
    29.70
    
    
    
    54,892,338
    
    
    
    30.67
    
    
    
    24.30
    
    
    
    96,036,000Second Quarter
    
    
    44.04
    
    
    
    32.80
    
    
    
    40,296,027
    
    
    
    35.56
    
    
    
    26.42
    
    
    
    89,500,200Third Quarter
    
    
    46.00
    
    
    
    36.08
    
    
    
    43,354,176
    
    
    
    38.38
    
    
    
    30.95
    
    
    
    73,579,800Fourth Quarter
    
    
    36.30
    
    
    
    28.25
    
    
    
    66,542,436
    
    
    
    31.11
    
    
    
    24.26
    
    
    
    138,311,700Year 2005
    
    
    46.00
    
    
    
    28.25
    
    
    
    205,084,977
    
    
    
    38.38
    
    
    
    24.26
    
    
    
    397,427,7001Trading prices are in Cdn$
    
    Source: Thomson Financial
 NYSE Corporate Governance




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##### 



A P P E N D I X
    
    113POTASHCORP 2007 FINANCIAL REVIEW
 MARKET AND INDUSTRY DATA
STATEMENT
   FOOTNOTES, SOURCES, ABBREVIATIONS, TERMS AND MEASURES
  FOOTNOTES1
    
    Availability of Raw Materials
    
    Source: Fertecon, EIA2
    
    Cost of New Capacity
    
    Source: Fertecon, PotashCorp3
    
    Greenfield
    
    Definition: New operation built on
undeveloped site4
    
    Greenfield Development Time
    
    Source: Fertecon, PotashCorp5
    
    Producing Countries
    
    Source: Fertecon6
    
    State- or Subsidy-Controlled Capacity
    
    Source: Fertecon, British Sulphur, PotashCorp7
    
    Industry Operating Rate
    
    Source: Fertecon, PotashCorp8
    
    PotashCorp Nameplate Capacity
    
    Source: PotashCorp9
    
    PotashCorp World Position by Capacity
    
    Source: Fertecon; Blue, Johnson; Agrium;
Mosaic; Terra; PotashCorp10
    
    5-Year Demand Growth CAGR
    
    Source: Fertecon11
    
    Total World Demand
    
    Source: Fertecon, IFA, PotashCorp12
    
    PotashCorp Share of World Production
    
    Source: Fertecon; Blue, Johnson; Agrium;
Mosaic; PotashCorp
 ABBREVIATED COMPANY NAMES AND SOURCES*Agrifos
    
    Agrifos Fertilizer Inc., USAAgrium
    
    Agrium Inc. (TSX and NYSE: AGU), CanadaAPC
    
    Arab Potash Company Ltd. (Amman: ARPT), JordanBelaruskali
    
    PA Belaruskali, BelarusBloomberg
    

Bloomberg
L.P., USABlue, Johnson
    
    Blue, Johnson & Associates, USABritish Sulphur
    
    British Sulphur Consultants, UKCanpotex
    
    Canpotex Limited, CanadaCBOT
    

Chicago
Board of Trade, USACF
    
    CF Industries, Inc., USACNC
    
    Caribbean Nitrogen Company, TrinidadCP Rail
    

Canadian
Pacific  Railway, CanadaCVRD
    
    Companhia Vale do Rio Doce, BrazilDoane
    
    Doane Agricultural Services, USADJUSBM
    
    Dow Jones US Basic Materials Index, USAEIA
    
    Energy Information Administration, USAEuroChem
    
    EuroChem Mineral and Chemical Company, RussiaFAO
    
    Food and Agriculture Organization of the United NationsFertecon
    
    Fertecon Limited and Fertecon Research Centre Limited, UKFMB
    
    FMB Group Limited, UKICL
    
    Israel Chemicals Ltd. (Tel Aviv: ICL), IsraelIFA
    
    International Fertilizer Industry Association, FranceIMF
    
    International Monetary Fund, USAINEOS
    
    INEOS USA LLC, USAIntrepid
    
    Intrepid Potash, USAIPNI
    
    International Plant Nutrition Institute, USAK+S
    
    K+S Group (Xetra: SDF), GermanyKoch
    
    Koch Industries, Inc., USAMississippi Phosphate
    
    Mississippi Phosphate Corporation, USAMosaic
    
    The Mosaic Company (NYSE: MOS), USANOLA
    
    New Orleans, Louisiana, USANYMEX
    
    New York Mercantile Exchange, USANYSE
    
    New York Stock Exchange, USAOCP
    
    Office Cherifien des Phosphates, MoroccoOMS
    

Overseas
Marine Service, USAPemex
    
    Petroleos Mexicanos, MexicoPhosChem
    
    Phosphate Chemical Export Association, Inc., USAPIRA
    
    PIRA Energy Group, USAQSLP
    
    Qinghai Salt Lake Potash Co. Ltd., ChinaSilvinit
    
    JSC Silvinit, RussiaSimplot
    

J.R. Simplot Company, USASinofert
    
    Sinofert Holdings Limited (HKSE, 0297.HK), ChinaSQM
    
    Sociedad Quimica y Minera de Chile S.A. (Santiago Bolsa de
   Comercio Exchange, NYSE: SQM), Chile
 ABBREVIATED COMPANY NAMES AND SOURCES* CONTINUEDTerra
    
    Terra Industries, Inc. (NYSE: TRA), USATringen
    
    Trinidad Nitrogen Co., Limited, TrinidadTSX
    
    Toronto Stock Exchange, CanadaUralkali
    
    JSC Uralkali, RussiaUSDA
    
    US Department of Agriculture, USAUSEPA
    

United
States Environmental Protection Agency, USAYara
    
    Yara International (Oslo: YAR), NorwayGLOSSARY OF TERMS2007E
    
    2007 Estimated2008F
    
    2008 ForecastCAGR
    
    Compound Annual Growth RateCanpotex
    
    An export company owned by all Saskatchewan producers of
potash (PotashCorp, Mosaic and Agrium).CFR
    
    Cost and Freight  for delivery of goods to destinationConsumption vs Demand
    
    Product applied vs product purchasedFOB
    
    Free on Board  cost of goods on board at point of shipmentFSU
    
    The former Soviet UnionGDP
    
    Gross Domestic ProductLatin America
    
    South America, Central America, Caribbean and MexicoLNG
    
    Liquefied Natural GasMMBtu
    
    Million
British thermal unitsMMT
    
    Million tonnesNorth America
    

The
North American market includes Canada and the United States.Offshore
    
    Offshore markets include all markets except Canada and the
US.Optional Capacity
    

Equipment
in a state of readiness to produce. While operational capacity is
increased at mechanical completion of a project, a period of ramp-up
may be required to achieve full operating levels.PhosChem
    
    An association formed under the Webb-Pomerene Act for US
exports of phosphate fertilizer products. Members are PotashCorp and
Mosaic. PCS Sales is responsible for export sales
of liquid fertilizers for all PhosChem members while Mosaic is
responsible for sales of solid fertilizers for members.PotashCorp
    
    Potash Corporation of Saskatchewan Inc. (PCS) and its direct or
indirect subsidiaries, individually or in any combination, as applicableState- or Subsidy- Controlled Production
    

State-controlled: Operational control in the hands of the state Subsidy-controlled: The state provides subsidies which control the
economic viability of the operationSCIENTIFIC TERMSNitrogen
    
    NH3
    
    ammonia (anhydrous), 82.2% NHNO3
    
    nitric acid, 22% N (liquid)UAN
    
    nitrogen solutions, 28-32% N (liquid)Phosphate
    
    P2O5
    
    phosphoric acid (liquid)MGA
    
    merchant grade acid, 54% P2O5 (liquid)DAP
    
    diammonium phosphate, 46% P2O5(solid)MAP
    
    monoammonium phosphate, 52% P2O5(solid)SPA
    
    superphosphoric acid, 70% P2O5(liquid)MCP
    
    monocalcium phosphate, 48.1% P2O5(solid)DCP
    
    dicalcium phosphate, 42.4% P2O5(solid)DFP
    
    defluorinated phosphate, 41.2% P2O5 (solid)Potash
    
    KCl
    
    potassium chloride, 60-63.2% (solid)FERTILIZER MEASURESP2O5 tonne
    
    Measures the phosphorus content of fertilizers having different chemical analysesN tonne
    
    Measures the nitrogen content of fertilizers having different chemical analysesProduct tonne
    
    Standard measure of the weights of all types of potash, phosphate and nitrogen products




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